Finance

Few people are aware that it is possible to invest over £90,000 a year in tax free savings. The personal allowances are as follows :-

Invest £15,000 in each issue of three and five year Index linked Savings Certificates which have tax free, inflation proof returns. You can also save £15,000 in each issue of two and five year fixed rate interest savings certificates, which offer fixed rates and tax free returns - giving you a total of £60,000.

The maximum an individual can invest in Premium Bonds is £30,000, which although paying no interest, offer you the chance to win large tax free cash prises of up to one million pounds each month.

Finally, you can invest up to £7,000 each financial year in an ISA, or Individual Savings Account, which is simply a savings account where the interest isn't taxed. They were launched by the Government to encourage people to save for the future.

There are two types - cash ISAs called mini ISAs and stocks and shares ISAs called Maxi ISAs.

Your £7,000 allowance can be split between either one maxi or two mini ISAs.

Maxis are used by people who want to invest their full allowance in shares, but they do allow some flexibility. You can invest up to £7,000 in stocks and shares or up to £3,000 in cash and the balance in stocks and shares. This must be done with one company.

The two types of mini ISAs are a mini stocks and shares ISA with a maximum investment of £4,000 and a mini cash ISA with a maximum investment of £3,000. Make sure you know what you are signing up for, because once you have bought a maxi ISA you cannot buy a mini ISA in the same tax year.

Stocks and shares ISAs can be bought from independent financial advisors, fund supermarkets, a financial broker or sometimes through high street banks. Cash ISAs are offered by virtually every bank, and funded management companies.

Finally remember that only the cash portion of a mini and maxi Isa is tax free - there's no tax to pay on any interest earned. Income on share dividends is taxed, so equity Isas are not completely tax free. Always think carefully and plan thoroughly before opening any ISA.