As the tax year comes to an end, Ed Bowsher takes a personal look at his favourite ISA. If you still haven't got your ISA for 2007/8, it's not too late......
I love ISAs. They're a nice simple tax break and if you have spare cash to save or invest, I'd urge you to consider opening one. And if you don't have time to open one before the end of this tax year on April 5th, you can always use next year's £7200 allowance from April 6th onwards.
So here's my personal take on a few of the best ISAs out there.
Cash ISAs
Cash ISAs are the most popular form of ISA. You can shelter up to £3000 from the taxman and not pay tax on the interest you receive. (The allowance rises to £3600 next year.)
My favourite cash ISA is the Birmingham Midshires Direct ISA. It pays an attractive 6.35% interest rate and you can make unlimited no-notice withdrawals. Birmingham Midshires also guarantees that its rate will stay 0.25% higher than ING Direct Cash ISA. The minimum deposit is £1000.
Sadly, the Birmingham Midshires Website is now only promoting this account for 2008/9, but it would be a good account to go for if you want to open up an account straightaway on the 6th.
Another good ISA is Abbey's Direct ISA (issue 2) which pays out 6.25%. The minimum deposit here is £1, and as this account can be operated over the internet, you may be able to beat the tax year deadline.
That said, I don't have any cash ISAs myself. I prefer to accept some risk and invest in the stock market for the long-term.
Which leads me to.....
Index Tracker ISAs
We've always liked index trackers at The Fool. They're a cheap and simple way to invest in the stock market and you can place them within an ISA wrapper. That means you don't even have to tell the taxman about your investment, let alone pay him any money.
If your tracker fund is a FTSE 100 tracker, it will buy shares in London's 100 largest companies and use the same weightings as the index. So if the FTSE 100 index rises by 10% over a year, your tracker fund should rise by roughly 10% over the same period.
My favourite Index Tracker ISA is the Fidelity Moneybuilder UK Index Tracker. I like it because it's particularly cheap with a `Total Expense Ratio' of just 0.28% a year.
However, my Foolish friend, Jane Baker, prefers the Legal & General UK Index Trust. Read why in her article here.
However, my most recent ISA wasn't a tracker. I like to try and beat the market and make my own investment decisions. So I prefer....
Self Select ISAs
Self Select ISAs allow you to buy shares directly and put them in the ISA tax wrapper. That's useful if you think you could make chunky profits in the future on which you might have to pay some Capital Gains Tax (depending on the size of your profits and your other circumstances.)
For my Self Select ISA this year, I opened a Motley Fool Self Select ISA and I'm happy to recommend it to other Fools. You need only pay a £10 dealing charge every time you trade and there is an annual administration charge of £25 a year. If you're investing larger sums, that's an attractive charge in my view.
So there's a quick lowdown on my ISA preferences. If you've already opened your ISA for this year, don't forget you can open a new one from April 6th onwards. Why hang around?
More: Earn A Tax-Free Return Of 543% | Time Is Running Out For Cash ISAs