Time to open a stocks and shares ISA?

Remember - the past performance or price of shares may have no bearing on any future gains

Top 5 Recommended ISAs

• Barclays Golden ISA
  (3.1% AER variable)
• Coventry BS - 1 year fixed
  (3.25%)
• Legal & General Ethical ISA
  (Equities fund)
• Nationwide e-ISA
  (2.75% AER variable)
• Virgin FTSE All-Share ISA
  (Equities fund)

With cash ISA rates at a low point, a growing number of investors are choosing to buy equities.

Earlier in the year, Barclays Stockbrokers reported a 37% rise in the number of ISA accounts being opened. This increase is also partly fuelled by the increase in higher rate tax to 50%. It is expected that in order to pay for all those bank bailouts that the government may increase the rate of capital gains tax (CGT) from its current level of 18%. If this were to happen, the tax-free status of ISAs would look even more appealing. Using the yearly ISA allowance can result in extremely large holdings, which are completely tax exempt. If you invested the full ISA allowance (£10,200)in a stocks & shares ISA for ten years, you'd have invested £102,000 (before accounting for any growth). That investment will always be protected from the taxman.

It is important to remember that while cash ISAs offer fixed (or predictable) rates of growth, that the value of equity ISAs can fall. Forecasters are also predicting more turbulence in the stock market before stability is restored. However, now is undoubtedly a better time to invest in equity ISAs than a couple of years ago when the FTSE 100 peaked above 6,700 points.

Corporate bond funds provide relative safety for those seeking income which, under current rules, is tax-free (unlike equity funds). A similar investment would be in government bonds (gilts), which have historically been considered to be even safer than corporate bonds. Investors should be aware that gilt prices are tied to the confidence in the government to meet its financial obligations. As the government's ability to pay for the economic rescue package has been called into question, the price of gilts has fallen markedly.

It is incredibly difficult to time the market - even the experts get it wrong. A popular option is to drip-feed money into your ISA investments. That way you will benefit from the times when the market is down (by purchasing more units at a cheaper price, and bringing your average purchase price down).