What ISA Options Do I Have?

POSTED ON Friday, 23 October, 2020

There is a lot of variety when it comes to the types of ISAs account; it can be overwhelming when looking to choose which one you think is right for you. Cash ISAs, Investment ISAs, Lifetime ISAs, Peer to Peer ISAs, Junior ISAs…with such a wealth of choice, which ISA is right for you? We’ve broken down all of your ISA options to give you the information you need to know. 

There are lots of different types of ISAs including:

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

Firstly, we’ll explain what each of these ISAs are, and how they can help you towards your savings goals. 

Then, in our second blog in this ‘series’, we’ll explain some of the ‘sub types’ of ISAs which fit under some of these ISA types which are more specific, so you can get a full picture of your options.

What’s 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.

Cash ISA

A Cash ISA is a bit like a savings account, but with a better interest rate. A Cash ISA is an type of ISA where your money is kept in the ISA wrapper and gathers interest.

This interest is protected from the tax man because it is kept in the ISA wrapper; any returns you gain from the interest are not subject to capital gains tax or income tax.

Cash ISAs historically have quite low interest rates, so can sometimes be a bit unattractive to people looking to get a good return. However, for the right saver there are lots of pros to having a Cash ISA which should be considered. Read our blog “Is A Cash ISA Worthwhile?” here, so find out if it’s right for you.

Investment ISA

An Investment ISA does essentially what it says on the tin: it is a way to invest while keeping your money within the tax free ISA wrapper. It can also be known as a Stocks and Shares ISA, which is a good way to explain how they work. These are generally interchangeable terms, though they have slightly different meanings:

“shares” can refer to owning part of one particular company (“I own shares in Unilever”)

“stocks” can refer to shares in a number of different companies (“I own stocks in the renewable energy industry”)

With an Investment ISA, you will gain returns on your investment which will be safe from the tax man. They tend to offer better return rates than Cash ISAs and allow you to invest easily and with access to specific types of investments, such as Ethical ISAs or Climate Change ISAs.

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 amount is subject to government legislation, and this is the allowance for 2020/2021. The catch with this account is that you can only access your money when you are either buying your first home, or you have reached the age of 55 and retiring.

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. You can theoretically take this money out of these accounts, however you will lose the bonus and potentially be subject to penalties.

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 type of account is best suited to those who are experienced investors – and therefore, familiar with the process – and are comfortable with a slightly higher associated risk.

These accounts offer the potential for higher return rates, so are attractive for those who already know what they’re doing when it comes to investing.

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. This is an excellent way for parents, grandparents, friend etc. to put money aside into a specified account designed to help a child have a strong financial basis to start their adult life.

The child whose name is on the account will be able to manage the money when they turn 16 but will not be able to access the cash until they are 18.

These accounts are subject to an additional government legislation – you can put in a maximum of £9000 this tax year into a JISA account. 

Read more about Cash ISAs 

Read more about Investment ISAs

Read more about Lifetime ISAs

Read more about Peer to Peer ISAs

Read more about Junior ISAs