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> Tracker ISA - UK Guide
 In a nutshell
An ISA that uses your investment to track stock market performance.
Why opt for an ISA
If you're looking for tax free investment then any kind of ISA could potentially suit your needs. Virtually every consumer is given an allowance for ISA purchase so it makes sense to use it. A tracker ISA can be particularly beneficial because it tracks stock market performance to given guidelines which also brings an element of security that you don't always get with standard shares ISA accounts.
Expected Return
Although tracker ISAs do set out conditions of operation it's still impossible to predict overall performance here. The return you will get will be dependent on how markets perform overall. So, if your markets do well, then so will your investment. If they do badly, then you'll do badly too. Chances are you'll do less well and less badly with a tracker ISA as a whole as you do get some security but this may be at the expense of performance if markets do phenomenally well, for example.
Access
Tracker ISAs are generally seen as long-term investment vehicles. You can, of course, generally access your money whenever you like - unless you choose to tie it up in a bond ISA, for example. But, if you withdraw money early from any investment account then you run the risk of losing out in profits and/or capital returns.
The risks
Generally speaking tracker ISAs are less of a risk than other ISA investment accounts. Some products will even guarantee your capital with this kind of ISA. Tracker ISAs set out their own limits on performance so you'll do well if markets do well and will do less well if they go down - but you'll be spreading your risk across long-term market performance which should even out over your years of investment. As with any investment, you have no guarantees of security with a tracker ISA unless your account provider chooses to give them to you.
How often interest is paid
You're looking at long-term growth with a tracker ISA so interest isn't so much of an issue here. You may be able to find some income based products that will pay annual or monthly based income instead.
What to look out for
The costs for running tracker investments are less than those for other investments as the process of investment is generally automated - so you may find that these ISAs can be cheaper for you than other related products. If you opt for a CAT standard tracker you will, in any case, be given guarantees on Charges, Access and Terms. You do need to be aware, however, that CAT standards will change in 2005 so the terms may also change for new ISA investment from then too. The structure of a tracker investment can often suit inexperienced investors because it works to a formula so you need to give no input. It also means that you aren't relying on the knowledge and experience of your ISA Manager. This means that you are less likely to see big losses if mistakes are made - but, conversely, you may also lose out on big returns if they get it right.
You will also be limited in the savings you can make with a tracker ISA from a tax perspective as you can only invest so much in any given tax year. At the moment this stands at £7,000 for share-based investment in a maxi ISA or £3,000 in a mini share ISA/as part of a combined maxi ISA. So, these are the total sums you can save tax on. You also can't open a mini and a maxi ISA in the same tax year which limits you further and you can only invest up to the maximum allotted sum once without topping it up. You need to remember that it is likely that ISA limits will also change in 2006 - to a maximum investment of £5,000 in a maxi ISA. However, investment limits for shares ISAs (either mini or as apart of a combined maxi ISA) may rise to £4,000.
Alternatives
If you're willing to take more of a gamble then you can look at a standard shares ISA. If even a tracker ISA is too much of a gamble for you then you can simply opt for a cash ISA investment instead.
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