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ISA guides

Types of ISA explained

Learn what each of the different ISA accounts are so you can decide which one is right for you.

An ISA, or Individual Savings Account, is a tax-efficient savings account that helps you save for the future. Every tax year - which runs from 6 April to 5 April - you can contribute up to £20,000 into one or more ISAs, this is known as your personal ISA allowance.

Introduced on 6 April 1999, savers can today choose from 5 types of ISA: Cash ISAs, Stocks and Shares ISAs, Junior ISAs,  Lifetime ISAs and Innovative Finance ISAs.

The guide below looks at the pros and cons of each type of ISA.

What are the different types of ISA?

You can get 5 different ISA accounts: 

  • Cash ISA 
  • Stocks and Shares ISA 
  • Lifetime ISA 
  • Innovative ISA 
  • Junior ISA 

To set up an ISA you need to be a UK resident or a servant of the crown (diplomatic or overseas civil servant) or married to someone who is.

Cash ISA

A Cash ISA is a tax-efficient savings account where you don't pay tax on the interest you earn. You can save up to £20,000 tax-free each year and there are a few types to choose from: easy access, regular saver, and fixed-rate.

Cash ISA terms vary by type and provider, with some having restrictions on how much money you can withdraw. Introductory interest rates are usually attractive but may decrease after a certain period, it's important you research what's available and understand what you need and how often you'll need to access your money.

Cash ISAs at a glance

  • Tax-free savings
  • Money can be locked in for fixed terms, with penalties for early withdrawal
  • Interest rates may decrease over time

Stocks and Shares ISA 

A Stocks and Shares ISA, sometimes called an Investment ISA or Shares ISA, let's you contribute up to £20,000 a year into a tax-efficient savings account and invest that money in the stock market. You control how and where that money is invested, either in shares, funds, trusts, bonds or more.

Stocks and Shares ISAs are higher risk than Cash ISAs since you are exposed to market shocks. The value of your ISA could rise as well as fall, and you could end up with less than you put in.

At ii, we offer a Stocks and Shares ISA with access to some of the widest investment ranges as well as a wide resource of support from in-house investment experts.

Stocks and Shares ISA at a glance: 

  • Can achieve better returns than a Cash ISA
  • Great for long-term investing 
  • Requires an understanding of risk

Lifetime ISA 

A Lifetime ISA, or LISA, helps you put money aside to buy your first home or save for retirement. You can save up to £4,000 a year and every contribution gets a 25% bonus from the government up to £1,000.

If a LISA is used for a first home, taking advantage of the 25% bonus can be a significant help. If you want the savings account for retirement, you'll be able to access the money when you turn 60.

Money in a LISA can be invested in the stock market, so it's important to understand the risks as losses could erode your returns.

Lifetime ISA at a glance

  • Contributions get a 25% government bonus up to £1,000
  • Helps toward buying a first home or save towards retirement
  • Contributions are limited to £4,000 per year

Innovative Finance ISA

An Innovative Finance ISA is a tax-efficient savings account that allows you to offer your money as a loan to start-ups and small businesses - also known as peer-to-peer (P2P) loans.

Any growth made on investments in an Innovative Finance ISA is not subject to capital gains tax or income tax. Any contributions to an Innovative Finance ISA counts towards your annual £20,000 ISA allowance.

Innovative Finance ISA at a glance

  • Invest by loaning money to small businesses
  • A non-traditional way of investing
  • Riskier than a cash savings account

Junior ISA 

A Junior ISA, or JISA, is a tax-efficient way of investing for children. You can invest up to £9,000 per year and won't pay capital gains tax, dividend tax or income tax on any returns.

The money held within a Junior ISA is only accessible by the child at their 18th birthday, at which point the account converts into an adult ISA.

Only a parent or legal guardian can open a Junior ISA for a child, but anybody can contribute money into it. ii offers a Junior Stocks and Shares ISA to existing customers.

Junior ISA at a glance

  • Great way to save for a child's future
  • The child can access the money at age 18
  • £9,000 annual contribution limit

Comparing the different types of ISA accounts

Cash ISAS&S ISALifetime ISAInnovative Finance ISAJunior ISA
Age you can open an account16 and over18 and over18 to 3918 and overup to 16
Annual contribution limit£20,000£20,000£4,000£20,000£9,000
Better for long-term savings goals?✔️✔️✔️✔️
Low risk savings option?✔️✔️Depends if you choose cash or investments
Investment typeCashStock market investmentsCash or investmentsPeer-to-peer loanCash or investments
Government bonus✔️

Which is the best ISA to have? 

Every type of ISA has pros and cons, so you need to research each to decide which best suits your lifestyle and financial goals. Think about your goals, whether they are short term or long term. And think about how much risk you are happy with.

Remember that investing is risky, investment value can go up or down and you could get back less than you invest.

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Learn more about our Stocks and Shares ISA

Learn how to make the most of your Stocks and Shares ISA with our useful guides.

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It's easy to transfer Stocks ISAs and Cash ISAs to ii.

Junior ISA

A tax-efficient way to invest in your child’s future.