ISAs: A savings solution for the masses

Since their introduction in 1999, ISAs - or individual savings accounts - have gone on to be adopted by all types of consumer looking to make the most of their nest egg with the added bonus of being completely tax free.

Originally, the ISA was brought to the market as a replacement for existing products like personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs). Now, according to figures from the end of 2009, there have been well over 19 million ISA accounts opened across the UK - proving they have truly become a mainstream solution for the masses.

However, even though people of all ages and financial standings are enjoying the benefits they bring, there are still some serious misconceptions about fixed rate ISAs and their variable rate siblings. One such belief is that the product is specifically targeted at consumers looking to make a long-term investment. Although it is true leaving funds in an ISA for a long period of time is a great way to make the most of them, it should also be noted the facility also provides a solid option for the short-term.

So, before we get to money saving tips and how to get the best ISA rate, it might be worth explaining briefly how the products work. When you set up an ISA you will be offered an initial choice. If you decide to put your money into one of the many cash ISAs available, you'll effectively be getting a high interest savings account that operates on a tax-free basis. However, a stocks and shares ISA means your provider can pick investments, properties or bonds on your behalf. The option is also available to put money into both, but - like all ISAs - the amount you invest needs to fall within a certain allowance. Last April, the Treasury announced that the limit for savers aged 50 and over would rise from £7,200 to £10,200 and this has been effective since October 6th. From April 6th 2010 this offer will be extended to everyone else - which could mean now is a great time to consider a holding. 

It has been predicted that the move will benefit around five million savers who are currently using the full allowance. Following the announcement of the rise, Chancellor Alistair Darling said: "I'm determined to help savers, because while low interest rates have helped millions of homeowners, I also know that they have hit those who rely on their savings to get by. This is why I am increasing the ISA allowance for all over-50s by £3,000 to £10,200 and from April next year for all savers." Exchequer Secretary, Sarah McCarthy-Fry added: "This change will make a real difference.

In terms of popularity, Virgin Money recently issued figures that suggested the 50-plus demographic has more than doubled their lump sum contributions following the allowance increase - and it is hoped this level of take-up will be replicated by everyone else from April onwards. Grant Bather, spokesman for the group, also commented that it was clear from this research that the decision had been a hit, recommending that people of all ages now take full advantage of it.

Of course, it could feel as if, with so many options available, finding the best ISA deal is a potential minefield. But as long as you know exactly what you want from the scheme this doesn't have to be the case. Long-term investors looking to make as much as possible from their nest egg might want to consider fixed-rate ISAs, as locking away cash for a greater time can ensure that they make the most of the rate they attain. It has been predicted by some economists that rates may stay low for the most part of 2010, but should rates increase at a later date, savers who have accrued larger sums with their fixed rate ISA may find they are in a strong position.

But that is not to say a variable rate option is not without its benefits. As interest rates go up and down, ISA holders may find that when the economy strengthens and the country has fully emerged from recession, their package may begin to work much harder for them. But of course, this is all dependent on the decisions the Bank of England makes for the rest of the year.

When it comes to picking an investment, there are a range of options available from Halifax that could be just what you are looking for - one of which is the ISA Direct Reward. What makes this particular product so appealing is that in addition to being one of the best interest rates around, customers are given the opportunity to withdraw on the account up to four times - which means any emergency use of your savings is covered. In addition, unlimited deposits mean you will be given ample opportunity to get the sum to its limit. 24/7 online and telephone access to the ISA are just two of the other benefits the product has to offer and for those who are interested in switching from their existing provider will find that Halifax also promises a hassle-free service for doing so - all of which can be done quickly and easily for free. The bank also has an online savings interest calculator that could help you figure out exactly what you will be able to put in and how much you could be earning on your investment.

Halifax offers a complete range of bank accounts and personal investment products. Whatever you're looking for: from savings to personal loans, a mortgage or a credit card, at Halifax we aim to give you a little extra help. We even offer help with your home insurance and travel insurance too.