If they get the timing - and the price - right, an Individual Savings Account (ISA) holding stocks and shares is one of the best investments a small saver ever makes.
The entire personal ISA allowance of £10,200 for 2010/11 can be held in stocks and shares - rising to £10,680 in 2011/12.
Capital gains on equity ISAs are tax free, while income earned is subject only to a 10% tax credit deducted from dividends.
According to the Fair Investment Company, a savings and pensions specialist, a couple putting the maximum allowed in stocks and shares ISAs each year since Gordon Brown launched them in 1999 would have invested £87,600 each, or £175,200 in total.
With growth of 7% per annum, net of charges, their 'nest egg' of more than £275,000 is now beyond the taxman's reach.
Money held within this fund can be reinvested in other suitable investments, such as equity income funds, bonds, or funds linked to key commodities like gold, and further profits will also be tax free.
In retirement, savers can take capital and profits earned from an ISA 'pot', also tax free. That's why stocks and shares ISAs can make such good long-term investments.
Bold investors who bought stocks and shares ISA in March 2009, when London's FTSE-100 of top shares was roughly half this week's level, have seen four-figure gains, totally tax free.
Mark Dampier, at financial advisors Hargreaves Lansdown, thinks it might be too good to last.
"At some stage in the next few years, the Government is going to see how much money is being put away in a tax-free environment on top of pensions," he says.
"I can see them maybe doing something such as reducing allowances."
Most investors put managed funds, rather than single company shares, in equity ISAs to lessen the risks.
Carl Martin, at financial advisor CBG Group, says: "At present, cash pays out about 1% interest within an ISA, with inflation currently about 3.7%.
"Equities tend to increase by inflation and then by the performance of the individual company or the managed fund, so long-term investors are likely to outperform inflation."
There is another attraction with equity ISAs: savers can drip feed money in by regular payments from their bank account.
Because the unit price of managed funds goes up and down, they invest at a range of prices which can turbo-charge gains when markets hit a strong period of growth.
There is, however, one snag with stocks and shares ISAs: with hundreds of managed funds to choose from, investing in a range of different things and worldwide, how can you find a fund which delivers a decent profit and makes the tax shelter worth having?
The website unbiased.co.uk can suggests three financial advisors in your locality. But advisors require payment, often on an ongoing basis to monitor your investments.
Another option is to buy a ready-made product - M&S Investments, for example, offers Cautious, Dynamic and Balanced options, with portfolios put together by HSBC Global Asset Management to suit individual risk profile.
If you are happy to make your own investment decisions, get a discount brokers to arrange ISAs or on an "execution-only" basis. These brokers usually refund a substantial chunk, and sometimes all, of the initial commission which the funds themselves would charge new investors.
However, these brokers - and most ISA managers, for that matter - do levy an annual charge, typically about 1.5% of portfolio value.
Discount brokers invariably produce glossy brochures at this time of year detailing a handful of funds to suit most needs.
Hargreaves Lansdown, the financial advisor whose own shares have soared this year, produces a monthly edition of its Investment Times. It runs its own Income & Growth fund, which holds stakes in 11 leading funds invested worldwide.
Willis Owen has revamped its approach for 2010/11 to attract more private investors. For sheer simplicity, it's hard to beat the list of 18 funds - from Neptune Greater Russia to the steadfast M&G Recovery Fund - compiled by Financial Discounts Direct.
Two clear themes are popular with investors this year: many seek income, typically in the 4-6% range, which they can't get on cash. Obvious low risk options include M&G Global Dividend Fund, or Artemis Income.
Savers further from retirement may have more time to wait for growth: prospects here might be more exciting in the emerging markets of the BRICs - Brazil, Russia, China and India - though India's stock market has fallen back sharply in recent months.
With the right fund, there may be rich pickings at home too: Mark Dampier at Hargreaves Lansdown tips Edinburgh Investment Trust, where celebrated fund manager Neil Woodford is convinced that drug giants GlaxoSmithKline and AstraZeneca look "absurdly cheap".
'Green' investors might be tempted by BlackRock New Energy, while the giant Templeton Emerging Markets fund might present a real opportunity after recent under-performance.
Adrian Lowcock, at financial advisor Bestinvest, tips Artemis Income, a big favourite with ISA providers, and M&G American.
Some advisors are also keen on a high profile launch: Invesco Perpetual Asian Income will attract key interest on the back of stellar performances by Invesco Perpetual Income funds closer to home.
The vital thing with stocks and shares ISAs is to make regular investments, perhaps £100 or £200 per month. In a few years, a valuable savings pot can emerge.
My personal choice is the Standard Life UK Smaller Companies Trust, run by Harry Nimmo. It has doubled my money in five years, with more - I hope - to come. If only my Standard Life pension had enjoyed similar success!
:: Information: Leading ISA providers include: Willis Owen (0800 597 2525 and www.willisowen.com); Killik & Co (020 7337 0462 and www.killikandco.com); Hargreaves Lansdown (0117 900 9000 and www.h-l.co.uk); Financial Discounts Direct (01420 549 090 and www.financialdiscounts.com).
Barclays Stockbrokers (0845 601 7788 and www.stockbrokers.barclays.co.uk); TD Waterhouse (0845 607 6002 and www.tdwaterhouse.co.uk); Halifax Share Dealing (0845 722 5525 and www.halifax.co.uk/sharedealing).
Poundnotes
:: The Bank of Gran and Grandad is helping to prop up family finances, says Key Retirement Solutions, whose Equity Release Market Monitor 2010 shows £147.5 million of £922 million released from bricks and mortar is helping out younger generations.
One in four equity release customers helps the family, says Key Retirement Solutions, and one family collected a whacking £262,000 from generous elderly members.
Money passed down the generations goes to a variety of uses, from helping children to clear debts to buying houses and cars. Family weddings are financed this way, while others help grandchildren through university. Releasing equity also cuts potential inheritance tax in the future.
The analysis shows widows - and, to a lesser extent, widowers - are the most generous to families, handing out average cash gifts of £30,100. Married couples pay out an average £20,258. On average, sons collect £21,131 while daughters get £18,625.
Dean Mirfin, Key Retirement Solutions director, says: "The Bank of Gran and Grandad is definitely open for business even if the traditional high street banks are tightening up - and crucially their money is a gift.
"Retired homeowners have around £770 billion tied up in their houses and many feel financially comfortable enough themselves to be able to help others. It is crucial that families are involved when people take a decision to release equity from their home and if they are receiving the money all the better."
Key Retirement Solutions enquiries: 0800 531 6010 and www.keyrs.co.uk/free-guide.
:: Savers have a better chance of beating inflation after the decision by BM Savings to lift the fixed rate of interest on its Inflation Rate Bond by 0.25% to 1.50% AER/Gross.
This rate is paid in addition to January's annual inflation rate (Retail Prices Index), and the new, higher rate applies to new and existing customers.
The offer period is extended to March 21, so more savers get this rate to keep pace with inflation.
John Bianco, head of BM Savings, said: "The BM Inflation Rate Bond has been extremely popular with savers since its January launched. Due to market changes we have increased the fixed rate offered, in addition to the annual inflation rate.
Interest is paid annually on the anniversary of the start date and RPI inflation rate will be taken from the January prior to the annual interest payment. Interest is paid in to a bank account of the saver's choice, and cannot be added to capital
Capital is protected so savers still get their original deposit back, plus the fixed rate of interest even if deflation occurs.
The five-year investment term starts on March 28, with a minimum deposit of £500, maximum £1 million. Opened by phone or by post, accounts mature on March 28, 2016, with additional deposits permitted only during the offer period (as long as the issue remains open).
Until the start date all funds invested earn a 0.50% fixed interest rate, to be paid on March 28. There's a 14-day cancellation period in which customers can close their account, but after that no withdrawals are permitted.
BM Savings: 0845 603 2191 and www.bmsavings.com
:: Five million Britons are permanently overdrawn, and more than 18 million have gone into the red in the past year, says moneysupermarket.com.
The comparison site says 20- to 29-year-olds are the most frequent users of overdrafts, while over-70s are the least likely to be in the red.
The website says that anybody permanently in the red should consider switching to Santander's Preferred account, which caps its monthly fee at just £5 - a big attraction when the cost of using a £500 overdraft permanently can be as high as £240 a year on some accounts. Those who go overdrawn less frequently might consider the Reward Current Account from Halifax, which charges £1 per day for overdraft balances under £2,500.
:: If you have £10,000 to put away for the medium term, check out two new fixed term deposit accounts from Close Savings, part of financial services group Close Brothers.
The Premium Gold fixed rate deposit accounts will pay 4.0% AER over 18 months and 5.0% AER for three years, with interest paid annually and at maturity. It's a limited offer, which means it will close soon if demand is high.
Close Savings enquiries: 020 7392 1772 and www.closesavings.co.uk.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
Close Savings www.closesavings.co.uk 5.00% (F) Premium Gold Three Year Bond (B) £10,000 Yly
Aldermore 0845 604 2678 4.90% (F) Fixed Rate Account Five Year Bond £1,000 Yly
Santander 0800 234 6065 3.15% Flexible ISA Issue 3 Instant £1 Yly
Dunfermline BS 0845 733 6688 3.00% 60 Day Notice 60 Days (B) £1,000 Yly
Cheshire BS 0800 243278 2.95% 30 Day Postal Saver 30 Day (P) £1,000 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.29% (rem) variable for term 60% £99 Yes
Hinkley & Rugby BS 0800 774499 2.44% disc for two years 75% £795 Yes
ING Direct 0845 032 8800 2.50% disc until 31/03/13 70% none Yes
First Direct 0845 610 0100 2.79% variable for term 65% £99 Yes
Furness BS 0800 220568 3.29% (disc) for three years 80% none Yes
Code:
*K- Operated by Internet, Telephone, or Post
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
