Exploding some myths about savings

Misconceptions and Isas are virtually synonymous. But since the tax-saving accounts were launched on the public a year ago, at least one thing has improved.

According to Abbey National, four out of five people now know that an Isa is a savings deal and not an energy drink - unlike a year ago when a similar percentage confused unit trust group M&G's Isatonic slogan with a fizzy beverage.

But despite this advance, there are still Isa myths galore. Here is our list of the most common - and the unalloyed truth:

MYTH: Isas are tax-free

TRUTH: Most Isas are but popular equity Isas only return half the 20% deducted from dividends at source - and that is only guaranteed for five years.

MYTH: A cash Isa can be used as a savings account

TRUTH: You can put money into a cash Isa and take the money out again. But once you've withdrawn your cash, you cannot replace it - so you lose out on your tax-free allowance.

MYTH: You can have a maxi Isa and a mini Isa at the same time as long as the total in any tax year does not exceed £7,000

TRUTH: Do this and the inland revenue will send you a demand for payment of tax on one or the other of your accounts.

You cannot mix minis and maxis in any one Isa year no matter what the total invested may be.

MYTH: You can carry over unused Isa allowances from one component to another

TRUTH: This is strictly banned. So you cannot transfer an unused part of a cash Isa to an equity product or vice versa.

This rule applies even if the total of the mini components you choose is less than the overall total.

MYTH: You can transfer a cash Isa to an equity Isa at a later date

TRUTH: This is also strictly banned. But you can transfer Isas within their own components - so you can swap an equity Isa with a bond Isa or another equity Isa; a cash Isa with another; and an insurance Isa with one in its class.

MYTH: Cat marking is a government sign of product approval - savers can ask for compensation if a Cat-marked account fails

TRUTH: Cat marking is not a sign of approval or a guarantee of performance. But it does serve as a guide to products with lower costs, better access and easier to understand terms.

Accounts and investment vehicles have to accord with all three - costs, access and terms - to qualify. Some may fail on one yet be better overall and there is no government bailout.

MYTH: You can only buy an Isa for one year at a time

TRUTH: This is largely true but some firms allow you to buy for this year and next year at the same time - they might have special deals.

However, next year's product will not be tax-free until April 6 although, if there are no dividend payments, this delay is academic.

MYTH: The Isa rules are written in stone for 10 years

TRUTH: the government has announced a review starting in April.