Individual Savings Account

Individual Savings Account or ISA is available to the residents in the United Kingdom and comes with favourable features. ISAs have two components or accounts: cash component and stocks or shares component. In the cash component, customers will have to make a cash deposit while in money in stocks or shares account are invested in stocks, corporate or government bonds or cash 'awaiting investment'. ISAs also have an insurance component which is available in two of the three types of ISAs, the Mini ISAs and Maxi ISAs.

Three main types of an Isa are Mini ISAs, Maxi ISAs and TOISAs. A mini ISA allows customers to save money in their cash and stocks/share accounts. Maxi ISA are sometimes better used for investment in shares and stocks as it allows customers to make a diversified portfolio of different investments. TOISA, which stands for TESSA-only ISAs, are developed so the original capital in a TESSA investment can be reinvested into a tax-free form. Investing in TOISA is valid only to those with matured TESSAs.

There are restrictions on the transfer of accounts between different managers, that is transferring funds to another account. Cash individual savings account can be transferred to a Shares or Stocks individual savings account. But the other way around is not allowed. Before 2008 or 2009, transferring from a Cash ISA to a Stock ISA was not allowed, but later on the transfer was made possible. The transfer must be done between the fund managers and if the customer does the transfer manually, the transfer will be treated as a withdrawal.

Individual Savings Account's main advantage is that customers cannot be taxed on the interests earned in the account. But the taxes when selling the shares held are still chargeable and not included in the tax-benefitted under an ISA. This account serves as a way to invest on some stocks and earn interests at the same time. As of now, the annual allowance for ISA is £10,200 and £5,100 of that amount may be utilized for a cash ISA.

In the United States, ISAs have a counterpart called the Individual Retirement Accounts. Similarly, individual retirement accounts are tax-deferred and withdrawals shall begin when the depositor reaches the age of 59 and a half. IRAs, as most call them, are established in banks, brokerages and mutual funds. Those who are not participating in a pension plan employment benefit or other mandated conditions can make deductible contributions to an individual retirement account. Other types of contributions to an individual retirement contribution are non-deductible.

Two types of IRAs are available: the traditional and the roth IRA. Traditional IRA permits non-taxable earnings until the time the depositor withdraws from the account. Here, the depositors' ability to deduct contributions from their taxes depends on certain conditions, such as filing status, adjusted gross income and being an active participant in other accounts. Roth IRA also provides non-taxable earnings and the contributions to be made are after-tax dollars. The contribution per year is up to $5,000 for those under the age of 50 and $6,000 for individual with ages over 50.