What do I need to know about ISAs?

POSTED ON Monday, 19 October, 2020

ISAs are a popular way for Brits to get good tax-efficient returns on their pennies, but it’s important to know what the ups and downs are of any financial investment. So we did some research to find the most common questions you have about ISAs, and have answered them for you here. 

As the name would suggest, at ISA.co.uk we are all about ISAs; and if our research is anything to go by, the general public has a lot of questions regarding ISAs. Luckily, we’re here to help – we’ve looked at all your questions, and got you the answers you need. 

Can ISAs lose money?

This is one of the big ones: the question of how risky are ISAs really.

The answer is that some ISAs can theoretically lose money – for example, an Investment ISA can lose money if your investments perform badly. Investing in the stock market (in any medium, not just ISAs) runs the risk of that investment performing poorly, and therefore you could get less money out than you put in – ego, losing some money.

Cash ISAs could theoretically lose some money as the current rate of interest on Cash ISAs is at a historical low. If you hold your money in an account long enough, inflation could theoretically rise faster than the rate of interest. This would make the money in your account ‘worth less’ than when you originally put it in.

Why are ISAs so good?

One of the biggest questions on the minds of those thinking of opening an ISA is this: why are they so good?

ISAs are an excellent, tax efficient way to make sure your money is gaining returns or interest without being subject to capital gains or income tax.

Every UK resident is entitled to put up to £20,000 into ISA accounts every tax year; this money can gain returns or interest without tax, which means you can maximise the amount of money you can get back from your investment or savings.

 Are ISAs protected?

The way in which your ISA is protected differs depending on the type of ISA you have.

Your Investment ISAs will not be protected by the fluctuations in the stock market.

Some ISAs are protected by certain schemes – most ISAs, including Stocks and Shares ISAs are protected by the Financial Conduct Authority (FCA) which is an independent regulatory body. They regulate the conduct for most of the UK’s financial bodies.

There are protections in certain situations – for example, in the extremely unfortunate event that your fund manager of an Investment ISA goes bust then you are protected by certain schemes. If your fund manager runs into issues and is unable to repay your money, then you could be compensated by the Financial Services Compensation Scheme (FSCS) for amounts up to £85,000 – per person, per institution. This is the UK’s statutory compensation scheme.

This will protect the investments of the vast majority of people – but if you have a considerably large amount of investments (i.e. greater than £85,000) you should ensure your investments are spread across multiple different platforms to efficiently protect your money.

What kind of ISAs are there?

There are a wide variety of different kinds of ISAs, including:

  1. Cash ISAs
  2. Investment ISAs
  3. Lifetime ISAs
  4. Peer to Peer ISAs
  5. Junior ISAs

Read more about ISAs here