The ISA universe simplified

For many, the prospect of an ISA has become rather perplexing. This useful overview will ensure that you know your LISA from your JISA.

The complexity of the ISA is rapidly growing. It’s not surprising that with the ever-changing guidelines and options available, when it comes to Individual Savings Accounts, potential investors are becoming increasingly bewildered. In a bid to demystify the world of ISAs, we’ve put together a basic overview of the various ISA types together with their essential facts, so you can simply view your options at a glance.

The cash ISA

These are the simplest form of ISAs. With this arrangement your savings are protected from the taxman, meaning that you get to keep any interest you accrue. You may only open one cash ISA per year and are limited to a £20,000 allowance (2018/19). Whilst cash ISAs can be beneficial for short-term saving goals, the interest rates stand at about 1%, meaning that greater returns could be found through other options.  

The stocks and shares ISA

This is the aforementioned ‘other option’. With stocks and shares ISAs, you have the opportunity to gain access to a wide fund range, with average interest rates typically between 6-7%. Due to the nature of this set up, it’s recommended that you invest for a minimum of five years. This can be great for long-term savings goals; however, it’s important to note that the values of stocks and shares ISAs can go down as well as up on a daily basis.

The innovative finance ISA

This is a relatively new type of ISA, which helps investors earn tax-free interest on peer to peer lending. Innovative finance ISAs, or IFISAs, cut out the middleman by investing through an online portal of peer to peer lenders rather than a bank. This means that higher rates of interest could be earned compared to a traditional savings account. However, it’s important to note that this arrangement means your capital is entirely at risk and that these ISAs are not protected by the Financial Services Compensation Scheme. 

The Help to Buy ISA

This is a form of cash ISA designed to assist first-time buyers in building up the deposit towards their first home. You are able to put away up to £200 per month into your Help to Buy ISA and the government will give you a 25% bonus of up to £3,000. This means you would need to have saved £12,000 in order to receive the maximum bonus. Both you and your partner are able to set up a Help to Buy ISA, which means that collectively you could earn a bonus of up to £6,000. There is no age limit as to who can open a Help to Buy ISA; you just need to be over the age of 16 and a first-time buyer. 

The lifetime ISA

This is a slightly different take on the Help to Buy ISA, which came into play in 2017. The lifetime ISA, or LISA, is a tax-free wrapper which allows you to put away up to £4,000 each year up until the age of 50. The government will then add a 25% bonus up to a maximum of £1,000 per year. You can choose to do this as cash savings or through stocks and shares. There are two options with the LISA; first-time buyers can use this to build up the deposit towards their first home, or you could choose to use the funds to build up your savings in retirement. This can only be accessed once you have reached the age of 60. You must be between the age of 18 and 39 in order to open a LISA.

The junior ISA

As the name suggests, this is an ISA which a parent or guardian can open for a child, also known as a JISA. These can be either a cash ISA or stocks and shares. The parent or guardian will manage the account but ultimately, the funds belong to the child. The Junior ISA allowance for the 2018/19 tax year is £4,260. The child is able to then take control of the account once they reach the age of 16 but can only withdraw funds at 18.

If any of these options interest you and you would like further details, please speak to one of our expert financial advisers who will happily discuss this with you. Please give us a call or fill out our enquiry form and we will soon be in touch. 

This is for generic information only and is not suggesting a suitable investment strategy for you. You should seek independent financial advice that takes your individual circumstances into account prior to proceeding with any course of action.

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