Because of the current state of the economy, everyone is trying hard to make the most of their money. Regardless of your age or financial situation, putting away some savings is always important. There are plenty of accounts and investments available on Moneysupermarket.com that can provide excellent ways of building up savings, but if you’re looking for the one of the best ways to save, an ISA (Individual Savings Account) might be the answer.

What Is an ISA?

ISAs were introduced by the government as an incentive to encourage us to save. Having an ISA account means that you are saving in a tax-efficient way. Any money or stocks and shares up to your yearly ISA allowance limit won’t have capital gains tax or income tax set against it. So any savings you do make will be completely tax free.

There are two types of ISA. The first and simplest is a cash ISA, which is just like any other savings account as you simply put money into it as regularly as you can and watch your balance grow. The other type is a stocks and shares ISA, which works in the same way except that instead of putting money into the account you invest in stocks and shares instead. This kind of ISA obviously involves more risk as your shares may rise or fall depending on the market.

Both ISAs have an annual limit on what you can invest in them. For cash ISAs the allowance is £5,640 and for stocks and shares ISAs it’s £11,280. Of course, you don’t have to invest the full amount – as long as you don’t go over the allowance you can put away as much or as little as you wish.

Why Choose an ISA?

The obvious benefit of ISAs is that there is no tax payable on your savings. You won’t have to declare any profits on your tax return, so they won’t affect any other part of your finances. Essentially, any gains you make will go directly to you and not to the taxman.

ISAs are not as confusing as they may seem. In fact, they are easy to set up and manage and can be opened with relatively small amounts. You can save as and when you want – make regular deposits each month or simply when you have the money available.

Many people think that an ISA is only for long-term savings and, of course, the benefits are greater for savers who can invest their money over a longer period. But they can also be used for short-term savings. Even if you might have to withdraw some of it, it makes sense to keep your money in a tax-free account for as long as possible.