Our How-To Guide on ISAs for Beginners

POSTED ON Wednesday, 14 October, 2020

So you’ve heard opening an ISA is a good idea, but you’ve no idea where to begin. You don’t know your LISAs from your JISAs, and the plethora of choice available on the market is fairly overwhelming. Luckily for you, we’ve broken down everything you need to know about ISAs and all the different kinds of ISAs on offer – so you can make an informed choice that is right for you. 

So…what exactly is an ISA?

An ISA is a tax-efficient way for you to make your money work; by putting your money into an ISA tax-free wrapper, you will enjoy returns which are safe from the tax man.

For this tax year, you are able to put in a maximum of £20,000 into an ISA.

Different types of ISAs include:

  1. Instant Cash ISAs
  2. Fixed Term ISAs
  3. Stocks and Shares ISAs
  4. Junior ISAs
  5. Lifetime ISAs
  6. Peer to Peer ISAs

Within these categories, there are also sub-categories such as Ethical ISAsFund Supermarkets and High Income ISAs. For more information on these, read our recent series of blogs.

What’s an Instant Access Cash ISA?

An Instant Access Cash ISA is a savings account where the interest you gain is protected from the tax man. You can

This will suit you if…

  1. You want to take last-minute advantage of your ISA allowance, but are wary of more high risk accounts
  2. You know you’ll need access to your funds

What’s a Fixed Term ISA?

A fixed term Cash ISA is like an instant access Cash ISA, but your money will be locked away for a set period of time. This can be 1,2,3,5, or 7 years – and different providers will offer different time periods and rates.

This will suit you if…

  1. You know you won’t need to access your cash for a set amount of time
  2. You want slightly higher rates than an Instant Access Cash ISA, but don’t want the associated risks of a Stocks and Shares ISA.

What’s a Stocks and Shares ISA?

With a Stocks and Shares ISA, your money is invested in – you guessed it – “Stocks” and “shares”. These are are generally interchangeable terms, though they have slightly different meanings:

  1. “shares” can refer to owning part of one particular company (“I own shares in Unilever”)
  2. “stocks” can refer to shares in a number of different companies (“I own stocks in the renewable energy industry”)

With this ISA you will gain returns on your investment which will be tax free.

This will suit you if…

  1. You are already an investor or want to be an investor – and you want your returns protected from the tax man
  2. You want the higher returns rate offered by Investment ISAs
  3. You want to put your money into specific investments, like Ethical Investment ISAs or Climate Change funds.

What’s a Junior Isa?

A Junior ISA, or JISA, is an ISA account which is set up on behalf of a child by a parent or guardian. Family, friends and parents can then put money into that ISA. For this year, the limit you can put into a JISA account is a very generous £9000 for this tax year. 

This will suit you if…

  1. You are a parent or guardian of a child and you want to put aside money for their financial future.

What’s a Lifetime ISA?

A Lifetime ISA is an ISA with a very specific purpose – long term saving. You can but in up to £4000 per tax year (this is the allowance for 2020/2021). The government will then give you a ‘bonus’ of 25% of what you have put into this account: which means you can get a boost of up to £1000 each year. This money can only be used to help you buy your first home or as long-term retirement savings.

This will suit you if….

  1. You are looking to buy your first home
  2. You are saving for retirement

What’s a Peer to Peer ISA?

A Peer to Peer ISA, otherwise known as Innovative ISAs, allow savers to lend their money to other borrowers directly – bypassing the middle-man and thus, benefiting from a better interest return.

This will suit you if…

  1. You’ve invested before, and are familiar with the process
  2. You’re comfortable with the associated risks

Read more about our Cash ISA rates & Investment ISA rates.