An Individual Savings Account, or ISA, allows investors to make a tax free investment of up to £7,000 a year. Put simply, an ISA works like a tax-free envelope for your savings and investments. ISAs provide several ways to save without paying tax on what you earn from your investment, and you can put money in and take it out whenever you want to. There were previously two types, maxi and mini ISAs.

A maxi ISA previously allowed you to invest the whole amount in one company, usually in shares, though it needn’t have been. The ISA provider allowed you to put up to £3,000 in cash savings and £1,000 into insurance. With a mini ISA you’d split your money before you invested it. You were previously allowed a mini ISA with three providers or with the same one. The limits were £3,000 in cash, £3,000 in shares and £1,000 in insurance.

However, anyone looking to open an ISA in the forthcoming tax year will notice the ISA rules have been simplified, as of 6th April 2008 there will be no distinction between Maxi and Mini ISA s in fact the Mini and Maxi titles will disappear and the savers will simply have an ISA allowance for 2008/2009. The investment limits have also changed, savers wil l now be able to invest up to £3,600 in cash and up to £7,200 in shares.

You can put in as little as you like, although most ISA managers stipulate a minimum amount. You can put in as much as £7,200 in each of the tax years to 2008/2009.

You can pay into your ISA whenever you want. You can pay the full amount in one go, make regular payments or pay in when you like. You can stop making regular payments at any time.

Can I have more than one ISA?

No. The Inland Revenue only allows you to invest in one ISA a year.

What is the best ISA rate?

It depends on what you are looking for. ISAs are designed to meet people's different needs. You can plan for the short term, or put your money away for much longer.

• Cash ISAs may be best for short-term savings, so that you can get at your money easily.
• Stocks and shares ISAs may be appropriate if you can afford to leave your money untouched for longer than, say, five years. Remember though that your investment can drop in value as well as increase, and profits are not guaranteed.
• Life insurance ISAs are also for long-term saving and offer some built-in life cover in the case of your death. Again, you are not guaranteed to make a profit and you may get back less than you put in, particularly if you take your money out after only a few years. However, some types of policy, including 'with profits' policies, are designed to iron out the ups and downs of the stock market.

If you don’t need access to your money in a hurry then consider a fixed rate ISA. If you think you might need some of the money quickly choose to one which, offers instant access. Interest rates for ISAs change so if you want the flexibility of being able to switch accounts, you need one with no transfer penalty.

Can I decide which shares go into my ISA?

You can put a unit trust into an ISA or choose your own shares in a self-select ISA.

What is a Cat mark in relation to an ISA?

This stands for charges, access and terms and allows a provider to show it meets certain criteria laid down by the Government. The Cat mark does not offer a guarantee that the ISA will perform well, but it does promise that you will have ready access to your funds should you need them and that the charges will be low. Remember, some of the country's best investment managers charge rates above those allowed by the Cat mark, yet their funds grow faster than their sector average.

How do I buy an ISA?

You can buy them through a broker or direct from a provider such as banks, building societies, National Savings, some supermarkets and retailers, friendly societies, insurance companies and unit and investment trust companies.

There is a charge of 3-5% when purchasing an ISA and an annual handling charge of around 1.5%. A number of Internet brokers offer discounts on these rates. Some companies allow you to apply by telephone, fax or e-mail.

How do I find out about them?

ISA managers will tell you about the ISAs they offer, but they don’t all offer every ISA facility. ISA managers may provide advice about which would be right for you.

Alternatively, you could go to an independent financial adviser for help in choosing the best option. The Financial Services Authority's booklets, the FSA guide to financial advice and the FSA guide to ISAs - An introduction, gives more information. www.fsa.gov.uk/consumer.

Maximise your investment by searching for the highest ISA rates today or if you have already reached your ISA limit this year why not open a savings account instead.