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If you are saving up to decorate your home, but perhaps need a little longer to earn enough to top up the decorating fund, you should make sure that your existing savings are working for you in the best possible way in the mean time.  The tax-free saving offered by an ISA may just fit the bill.

The Individual Savings Account (ISA) was designed to allow tax free savings for individuals, within a specified annual limit (more about this later).  ISAs are financial products that can contain up to two different types of investment.  There are many different variations of the ISA on offer from different providers, but the two basic types are cash, and stocks and shares ISAs.

Cash ISAs are basically tax-free savings account.  Cash can be deposited, up to the annual limit, and the interest gained on this sum is tax free.  The level of interest that the ISA can generate is clearly stated from the outset, just as with other forms of savings accounts, so it is easy to calculate the gains that a cash ISA will provide over the course of the year.

Stocks and shares ISAs are, as the name suggests, an investment in stocks and shares – and at the bottom line, this means that your investment can go down, as well as up.  There are a range of investments that can be made to compile a stocks and shares ISA, including unit trusts, open ended investment companies, investment trusts and government and corporate bonds.  It is also possible to buy individual shares and incorporate them into your yearly stocks and shares ISA allowance.

Currently, this allowance or limit stands at £7,200 per year for most individuals – this is the sum that can be invested in a stocks and shares ISA.  This is also the standing overall limit for individual ISA investment in a year.  The limit for a cash ISA is £3,600 per annum.  This means that those with a £3600 invested in a cash ISA can also invest up to £3,600 in a stocks and shares ISA – as long as this is done before the end of the current allowance period, which ends on 5^th April 2010.

All of these limits will be increasing across the board in April 2010.  For further details on the new limits, and different ways of investing in an ISA, try looking online at the information provided by companies like Legal & General, to get a good background in how the system works before investing your hard earned cash. See their website for more on opening an ISA.