The different types of ISAs

The different types of ISAs

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When it comes to deciding what to do with your hard-earned cash there are, naturally, lots of choices.  But even if you decide to save it or invest it there are still plenty of options.

 

Focusing on the tax-efficient individual savings accounts, also known as ISAs, comes with a range of different accounts for you to choose from.   You are allowed to save/invest up to £20,000 per year across these different ISAs in any combinations that you want without paying tax on it.

 

To help you, I have listed the different ISAs that are available in the UK and a few features that set them apart from each other.

 

Cash ISA

This is essentially the first savings account you should open.  Any interest you earn on your savings here will be tax-free.

 

It is important to keep in mind that interest rates are very low at the moment, so any interest you are earning is likely to below the rate of inflation.

 

With any savings account, not just ISAs, you will not pay tax on the first £1,000 of interest earned, so it might be worth looking into accounts with higher rates even if they aren’t ISAs.

Stocks and shares ISA

Investment accounts basically.  Again, you can place all your allowance here or any fraction of it that suits you.

 

Through these accounts, you will be able to invest in stocks and shares.  The financial institution that you open your account with will determine that investment options you have and the fees that you will pay for doing so.

 

It goes without saying that there is a risk involved with this, stocks can go down as well as up.  But historically the stock market has provided far greater results than leaving it in a cash ISA.

 

Lifetime ISA

These are a little different from the other types of accounts list here.  You can only save a maximum of £4,000 a year in them and they can only be used for one of two purposes:

  • Retirement
  • First home

There are several restrictions about who can apply for these and how you access your money so make sure you do your research.

 

The main incentive to pay into one of these accounts is that you get a top-up of 25% of whatever you pay in.  That is for every £4 you pay in you get £1.  Or if you pay in the full £4,000 in a year, you’ll get an additional £1,000.

 

Innovative Finance ISA

The newest ISA on the list and one that aims to recognise the power of Fintech and investment in small businesses.

 

This is definitely the riskier investment route as IFISAs aren’t covered by the FSCS meaning that your money isn’t protected.  Therefore, tread carefully here.

 

There are still profits to be had and if investing is more your thing then why not put your money to use supporting small businesses and cut out the middleman.

Junior ISA

These are for under 18s and you can open for your child at any age up until their 18th birthday when they can open the other ISAs on this list.

 

These accounts come with their own allowance which is not taken out of yours.  In 2020, you can save up to £4,368 a year within one of these accounts.

 

Like with “grown-up” accounts, you have some choices about the types of accounts that you can open.  There are cash ISAs or stocks and shares ISAs.  Again you can split your allowance between the two.

 

Do you have any questions?

Is there anything else you would like to know about ISAs?  What ISAs do you have and how have you found them?

Disclaimer:  Remember the information you read here does not represent advice.  Any ideas or suggestions are just that and may not work for you.  Read the full disclaimer here.


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This Post Has 10 Comments

  1. Sarah Stockley

    This is really useful. I wish I could save more, we as a family are quite low earners, living hand to mouth. Before I had kids I did have an ISA with Virgin but I honestly can’t remember what kind. I ended up using the money when I was om maternity leave with my first daughter.

  2. Marie

    I have a couple of ISAs and a junior ISA for jasmine. These are some great tips!

  3. Melanie Varey

    An interesting read. I find looking for savings accounts a little mind blowing at times so this helped me. Thank you!

  4. This reminds me that i need to start saving money in my LISA again. Do you know if you can use it to buy a council home? We are paying off out debt before saving to buy a house, but it’s worth thinking about in advance!

  5. Shelley

    Thanks for this really useful information. It was always at the forefront of my mind as to what is the best way to set ourselves up for the future.

  6. Kat

    A great post detailing the many types of ISAs. If you have savings you don’t need to access in an emergency, definitely save in an ISA. With savings rates so low we could all do with the tax advantage!

  7. Emma Reed

    I had no idea there were that many! I thought it all came under one heading

  8. Eva Katona

    Oh very useful – I’m really not good at with investments when it comes to them so I’ve learned some things now!

  9. Rebecca

    Wow, this is a really helpful post. Whenever numbers of money is concerned I get very confused so will save this post for future reference.

  10. Stephanie

    Thanks for the useful information, I don’t know anything about the so very helpful

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