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ISAs explained

Learn all about what ISAs are, how they work and the different types of ISA available

What is an ISA?

ISA stands for Individual Savings Account. ISAs are a tax-efficient way of saving money. You can save or invest up to a set amount (your ISA allowance) each tax year and you don't pay any tax on the income or capital gains (for an investment ISA, like ours) or on the interest paid (for a cash ISA).

How do ISAs work?

  1. Each tax year you will have a new ISA allowance. You can save into one account or split the allowance across multiple accounts. The current ISA allowance is £20,000. Each tax year you are able to save your money into one of each kind of ISA. Subject to not exceeding the overall £20,000 allowance.
  2. You can either split your allowance across different types of ISA (for example £10,000 in a stocks and shares ISA and £10,000 in a cash ISA), or choose to invest all of your ISA allowance into one type.
  3. Any money your ISA makes from either gains in the stock market, or from interest, is tax-free.

You cannot carry over your ISA allowance. If you don't use your whole allowance in a tax year, it will be lost. The UK tax year runs from 6th April to the 5th April the following year.

What are the different types of ISA?

Stocks and Shares ISAs

A Stocks & Shares ISA allows you to invest in a wide range of shares, funds, investment trusts and bonds.

Cash ISAs

Cash ISAs are similar to savings accounts. They pay interest free of income tax.

Innovative Finance ISAs

Peer-to-peer savings that use an ISA wrapper to make it tax efficient.

Lifetime ISAs

For saving for retirement or to buy your first home.

ISAs Compared

When choosing the best ISA for your money, it's important to consider which type of ISA best suits your financial goals and risk limits.

To help you get started, read our ISA comparison below. It offers a snapshot of the four different types of ISA, including their typical investment portfolios, eligibility requirements and ISA allowances.

Stocks and Shares ISA

Cash ISA

Innovative Finance ISAs

Lifetime ISAs

Description

A Stock and Shares ISA is a tax-efficient investment account that allows you to invest in a diverse range of funds, shares, investment trusts and bonds.

It's designed as a medium to long term investment option for at least 5 years. The value of your investment will go up and down. It isn’t guaranteed, so you may get back less than you put in.

 Learn more about our Stocks and Shares ISA.

A Cash ISA is very similar to an everyday savings account except any interest it pays will be tax free.

An innovative finance ISA contains peer-to-peer loans instead of stocks and shares or cash. Peer-to-peer lending matches investors with borrowers.

A Lifetime ISA (LISA) is designed to help people save for their first home or for their retirement. The government will give you a 25% bonus of what you pay in each tax year.

How your money is invested

  • Shares in companies
  • Corporate bonds
  • Government bonds
  • Unit trusts and investment funds
  • Cash
  • Some life insurance policies
  • Savings in bank and building society accounts
  • Some National Savings and Investments products
  • Some life insurance policies
  • Peer-to-peer loans
  • ‘Crowdfunding debentures’ - investing in a business by buying its debt
  • Cash
  • Cash
  • Stocks and shares

Eligibility

  • 18 or over
  • Resident in the UK or a Crown servant working overseas
  • Or married to/in a civil partnership with a crown servant working overseas
  • 16 or over
  • Resident in the UK or a Crown servant working overseas
  • Or married to/in a civil partnership with a crown servant working overseas
  • 18 or over
  • Resident in the UK or a Crown servant working overseas
  • Or married to/in a civil partnership with a crown servant working overseas
  • 18 to 39
  • Resident in the UK or a Crown servant working overseas
  • Or married to/in a civil partnership with a crown servant working overseas

ISA Allowance

You can save up to £20,000 per tax year in a Stocks and Shares ISA account or split the allowance across some or all of the other types of ISA.

You can save up to £20,000 per tax year in a Cash ISA account or split the allowance across some or all of the other types of ISA.

You can save up to £20,000 per tax year in a Innovative ISA account or split the allowance across some or all of the other types of ISA.

You can only pay £4,000 into your Lifetime ISA in a tax year.

We currently only offer a Stocks and Shares ISA.

ISA stands for Individual Savings Account.

You can have as many types of ISA as you want in each tax year (that is, between 6 April one year and 5 April the next year).

To open a Stock and Shares ISA with us, visit our Stocks and Shares ISA page which will take you to our Fund Selector. Here you can select your investment option to start our quick ISA application process. Remember the value of investments can go down as well as up, so you may not always get back what you invest.

You can put up to £20,000 into one ISA every tax year (that is, between 6 April one year and 5 April the next year). Or you can split that amount between two or more ISAs. There’s no limit on the total amount you can pay into your ISA or ISAs over the whole of your life.

You have an annual ISA allowance of £20,000 each tax year, which can go into one or more ISAs of any kind. And you don’t pay tax on any interest, income or capital gains that are earned by your ISA.  

To open an ISA you need to be resident in the UK or (if you live abroad) either a crown servant yourself, or the spouse or civil partner of one. To open a cash ISA, you need to be 16 plus. For other kinds of ISA, it’s 18 plus. And you can’t open a Lifetime ISA once you’re 40 or older. You can also open a junior cash or stocks and shares ISA for children under 18. Apart from that you usually can’t open an ISA for someone else, unless you have Power of Attorney. 

There's plenty to think about when choosing an ISA. Our article, 'What's the best ISA for me' might help you in making the right decision.

You can also discuss your options with a financial adviser, or get in touch with our team to learn more about ISAs before investing.

A fund pools together the money of lots of different investors and a fund manager invests on their behalf. Funds invest in various types of asset, such as shares, bonds or property, depending on the objective of the fund helping you spread overall risk.

Whilst SIPPs (Self Invested Personal Pension), Personal Pensions and ISAs all offer tax efficiencies, which you choose to invest in should depend on your personal saving goals and needs.

A key difference is around when you can release your money. With a SIPP or a Personal Pension, any money you invest is not able to be withdrawn until you're 55 or over (rising to 57 from April 2028), whilst ISAs are usually used for more short term goals than retirement (such as saving for a house) therefore funds can be released at anytime. However, Stocks and Shares ISAs are usually considered medium to long-term investments of at least five years.

A pension is a savings vehicle to provide an income at retirement. You may be eligible to receive tax relief at your marginal rate on contributions up to the higher of your earnings or £40,000.

Any income or gains made by the pension fund will be tax-free. When benefits are taken, generally up to 25% of the value can be taken tax-free with the remainder taxable at your marginal rate of tax in the same way as earnings. 

Any income or gains made by an ISA will generally be free of tax.

A Junior ISA is a tax-efficient savings account that can be set up in the child's name by someone who has parental responsibility for the child. Its annual savings limit is lower than an adult ISA - £9,000 for the tax year 2023/24 – but the interest rate offered for a cash Junior ISA is usually better.

There are two types of Junior ISA. A cash Junior ISA works in much the same way as a regular savings account whilst a Stocks and Shares Junior ISA lets you invest in the stock market through funds, shares and bonds. A child can have one or both types of ISA, and no tax is payable on any income or gains.

Once a Junior ISA has been opened, parents and other family members can save on the child’s behalf as long as the total deposited doesn’t exceed the annual allowance. You can set up regular instalments by direct debit or make one-off payments. The child cannot access the funds until they turn 18, at which time the account is automatically rolled over into an adult ISA. The child can then continue to save or take the money out and spend it however they like.

We are not currently offering a Junior ISA.

ISA allowance

An ISA allowance is the maximum amount a person is able to save in ISAs per tax year. Find out how much you can save.

Our Stocks and Shares ISA

Learn all about our Stocks and Shares ISA, it's key benefits and get answers to frequently asked ISA questions.

Types of ISA

Understanding the differences will help you decide which type of ISA might be right for you.

Listen to our new podcast

Join Kia Commodore and her guests as they aim to make you A Little Bit Richer with their bite-sized financial tips. Covering a range of topics which include understanding ISA's, learning about your payslip and saving to buy your first home - it’s all part of helping you make the best financial decisions for you.