ISA stands for Individual Savings Account. It was introduced by the UK government to encourage the masses to start saving and investing money along with the benefit of tax saving. This financial tool was introduced in 1999 as a replacement of other existing schemes.

The ISAs provide many tax benefits to the account holders, especially when it comes to isa rates. The dividends and interest on stock and cash, and all other capital gains are tax-free. Apart from this interest on any cash held in stocks and shares is subject to a flat charge of 20%. In 1999 the Advance corporation tax (ACT) which was payable by companies when they paid dividends, was abolished and after the abolition dividends are accompanied by a ‘notional’ 10% tax credit. It has also been guaranteed by the government that ISAs will continue to have the tax-free status until at least April 2010, although they may be continued beyond that date also.

Although ISA rates vary with institutions, the rate of interest for an ISA is the highest as compared to other types of accounts. The government, in 1999, introduced a voluntary CAT (Charges, Access and Terms) standard for ISAs to make it easier for inexperienced customers to understand the basics and the lower cost would make the scheme more attractive for investors.