Stocks and Shares Isa

With a stocks and shares Isa, you can put your money into a range of investments, such as government and corporate bonds, as well as more adventurous options like unit trusts, OEICS and investment trusts. You can also buy individual shares. These investments can be put into a "self-select" stocks and shares Isa.

Stocks and shares Isas are inherently more risky than cash Isas but if you pick the right investments at the right time, you could see a much greater return in the long run. You also have the option to invest more in a stocks and shares Isa than is possible in a cash Isa. This is because you can invest your full Isa allowance of £10,680 in 2011-2012 in a stocks and shares Isa.

Alternatively, you can put up to £5,340 into a cash Isa and the remaining £5,340 in a stocks and shares Isa. But you cannot put more than £5,340 in a cash Isa this tax year. You are also able to transfer your previous years' cash Isas into stocks and shares Isas without affecting your current year's Isa allowance.

If you pick collective funds of bonds or equities for your stocks and shares Isa, you will have an initial fee when you buy them and an annual management fee to cover the  administration costs and fund managers. Do check the fees before buying. However, if you use discount brokers or fund platforms the upfront fees may be rebated back to you and the annual charges discounted.

If you decide to 'go it alone' and pick shares for your Isa, the fees will be lower than investing through investment trusts or unit trusts, for instance. However, the onus is on you to research the best options and to keep a close eye on your shares. Selecting individual company shares is a much riskier strategy than going for funds which usually hold upwards of 50 stocks and shares within them. Another popular option is to go for exchange traded funds (ETFs) which are bought and sold like shares but are pooled investments like funds as they track an index. Since they are robot funds which passively follow their index they are cheaper than funds. The most popular ETF in the UK are those mirroring the FTSE 100.

Alternatively, you can consult an IFA to help you make the right investment decisions.

By putting your investments in an Isa you avoid paying capital gains tax on your profits when you sell and you will be exempt from income tax on interest-earning investments such as bonds.  However, as dividends are taxed at source at the basic rate, most taxpayers don’t get the advantage of receiving dividends tax-free.