Individual Savings Accounts (ISAs)

ISAs represent a tax-efficient container into which to place cash savings and investments in equities, bonds, collectives (see below).

The cash portion, currently up to £3600 per year, is usually a deposit with a bank or building society and because it is an ISA, interest and growth is not taxable.

Equities

Both cash ISAs and National Savings products are certainly much less risky than buying equities, that is to say investing in the shares of companies listed on a stock exchange. However, equities do offer an upside possibility that National Savings products do not.

You have the possibility of gaining not only a dividend - a proportion of the company's after tax profits distributed to shareholders - but also a capital appreciation. If the price of the shares goes up after you buy them then you have made, on paper at least, a capital gain.

The bad news though is that the value of shares can go down as well as up, which means you risk losing your investment if the price of the shares falls.

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