It is the most popular and most tax efficient instrument available. There are two types of ISAs, Cash ISA and Stocks & Shares ISA. The maximum amount one can invest in ISA in the current financial year is £15,240, which is revised every year.  The full amount can be invested in Stocks & Shares ISA or a maximum of £5,760 in Cash ISA and the balance in Stocks and Shares ISA.  One can have one cash ISA, one Stocks & Shares ISA or one each of both in a financial year.

Cash ISA offers fixed rate of interest and is available in banks, building societies or the post office.

Stocks and Shares ISA, as the name suggests invests in company shares and fixed interest securities of Government and corporates, which are linked to the market and therefore their value goes up or down. They carry higher investment risks with potentially higher returns as compared to Cash ISA.

You can also contribute to Junior ISA for a child to the maximum of £3,720 this financial year, if he is not in receipt of Child Trust Fund contribution.

You pay no Income Tax on the interest or dividends (share income) you receive from an ISA and any profits from investments are free of Capital Gains Tax. However, there is a 10% tax credit on dividend income which cannot be reclaimed.