Top tips for exploring equity ISAs

Consumers should look to fully utilise the maximum ISA allowance available to increase tax efficiency, says moneysupermarket.com. With interest rates low and inflation high, many savers could be missing out on better returns by not considering the option of investing in stocks and shares ISAs.

Britain's number one comparison site offers top tips for those looking to fully utilise their allowance in stocks and shares ISAs, and boost their long term savings. In the 2009/10 tax year, around 12 million UK savers invested in cash ISAs, which currently have a limit of £5,100, while only three million invest in stocks and shares ISAs. Many confident cash investors could be missing out on greater tax free savings by failing to consider the benefits of the £10,200 tax free allowance limit available with an equity ISA.

Although equity ISAs carry more risk than cash ISAs, savers can invest up to £10,200 per tax year, rising to £10,680 on 6 April 2011, and should make up part of a balanced portfolio for a long term savings plan.

Philippa Gee, investments spokesperson at moneysupermarket.com said: "The thought of taking out a stocks and shares ISA might seem daunting to a lot of people, but in fact they are a great option for anyone who has some money to put aside -  not just experienced investors or those who have a large amount of money to invest. There are significant advantages to keeping savings away from the taxman and there are plenty of funds to choose from, so whether they're seasoned investors or just dipping their toe in the water, most savers can find a product to suit them.

"Investing in equities can be extremely flexible and anyone looking to put money aside, whether they're planning for retirement, saving to fund their children's university costs or looking to build the deposit on a property, can find a product that suits their circumstances. However, it's worth noting that investors should only expect returns in the medium to long term. Generally this means five years at the very least, and ideally eight to 10 years.

"Whilst the process of choosing an ISA product can appear complicated, savers should not be put off as there is a huge amount of information available these days to help them make the right decision. Ultimately consumers need to do some homework, understand what sorts of products are available and establish which would suit their needs."

moneysupermarket.com's ‘do's and don'ts' for Stocks and Shares ISAs

Do's

Do think carefully - you need to make the decision based on research and information;

Do understand that there is risk involved - the amount of risk will depend on where you invest;

Do make use of your ISA allowance - often it is too good to lose for taxpayers, especially if you are a higher rate taxpayer;

Don't put all of your eggs in one basket - spread the risk, especially when you start building up your investments;

Do monitor your funds - just as when buying a car, which would need a regular MOT or service, you need to review how your investments are doing.

Don'ts

Don't invest if you are scared - the investment has to pass the ‘sleep at night' test;

Don't over concentrate your research - try to look at all the details of the fund not just charges or performance;

Don't assume performance is here to stay - past performance is just that, something that has happened and the future can change;

Don't invest if you need the money - while you can usually access your money, at whatever it's current value is, it should be considered a long term investment;

Don't get cold feet - stock markets will rise and fall, it's in their very nature, so don't get scared too early.

moneysupermarket.com has launched a stocks and shares ISA channel which allows first time and inexperienced investors to select their own funds. There are select lists of funds for all preferences; whether low cost, income, ethical, lower risk, medium risk as well as higher risk with the aim of helping customers who are put off by a choice of thousands of funds. The results are presented in a clear and simple format based on analysis from industry experts. All initial funds charges in the lists have been discounted to 0% and the ongoing total expense ratio (TER) has been capped so initial funds are not swallowed up in charges. Investors also have access to over 1,500 funds if they have something specific in mind.