Saving Tips: Why ISAs might be the best way to save

Throughout our lifetimes there will be big-ticket items that we need to save up for. This could be your dream wedding, planning for a baby, or your first car. There are several different kinds of financial options available that could help you save for these things. This can include ISAs, bond funds, equity funds and current accounts.

One of the best options for you might be an ISA (Individual Savings Account).

An ISA is a savings account with a special, government-approved tax wrapper. ISAs are popular and can be an effective way of savings if you are more risk averse but able to commit your money for longer than with a standard deposit. Like a normal savings account, your deposit grows with the addition of interest payments from your bank. The difference with an ISA is that you pay no income tax or capital gains tax on these returns. ISAs also tend to offer better interest rates than normal savings accounts. This can give your savings an extra 'boost'.

There are two kinds of ISAs available, cash ISAs and investment ISAs, and it is important you choose the best ISA for you to make the most savings. With an investment ISA, your savings are put into longer-term investments. The limit of cash you can deposit is also higher - this means you have the potential to earn more in your individual savings account if you are able to commit to saving for longer. Cash ISAs have lower annual limit but you are often more able to withdraw cash if you need to.

Interest rates will vary from provider to provider, and different providers may also have their own restrictions.

A different option is investing. There are several different kinds of investments and as with all financial products, some will be right for you and others won't. This is especially true as investments can be risky - and if you are saving for a specific purpose in the future you might find that you are less willing to lose your deposit.

Individual savings accounts work in a different way to investing and therefore offer different returns. It is important to know how comfortable you feel with a short-term loss as you have the opportunity to make long-term gains.

If you invest, you'll have to be prepared for some risk and a possible fall in the value of your investment. It is generally the case that the higher the risk, the higher the potential returns and vice versa. For example, investing in cash is low risk but the returns are minimal compared to investing in UK shares.

Fidelity is one of the world's largest mutual fund companies. In the UK they provide a range of savings and investment solutions for both individuals and corporations. From ISAs to pensions advice, visit www.fidelity.co.uk for all your saving needs.