What are the different types of ISAs?

Cash ISA

This is the really simple one – a cash savings account that comes with the benefit of not having to pay any tax on interest. You can pay up to £20,000 into a cash ISA every year. Some are instant access while others have fixed terms.

Stocks & Shares ISA

Stocks & Shares ISAs have really opened up investing to pretty much everyone. They’re simple accounts that you can usually set up and manage online and they give you access to a variety of investments (exactly what you get depends on the ISA provider). As with a cash ISA, you can invest up to £20,000 a year in a Stocks & Shares ISA and any gains you make will be tax free. But remember that investing is riskier than keeping your money in cash because investments can go down in value and you can end up with less money than you started out with.

Lifetime ISAs

A relatively new kid on the block, the Lifetime ISA was introduced in April 2017 with the aim of helping young people buy their first home or save for retirement. You can choose between a cash or Stocks & Shares ISA. While Lifetime ISAs are more complicated than regular ISAs, they come with some interesting benefits.

• To open a Lifetime ISA you’ll need to be between the ages of 18 and 40. Once the ISA is open, you can continue contributing to it until you are 50
  
  
• You can invest up to £4,000 in a Lifetime ISA every tax year (plus £16,000 into other ISAs to use your annual £20,000 ISA allowance)
  
  
• The Government will give you a 25% bonus on top of your contribution up to a maximum of £1,000
  
  
• 12 months after your first payment into your Lifetime ISA, you can withdraw the funds to buy a first property up the value of £450,000
  
  
• If you take the money out but don’t buy a home, there is a 25% withdrawal charge so you could end up getting back less that you put in
  
  
• You also have the option to leave the funds in your Lifetime ISA until you’re 60. At this point, you can withdraw them without a penalty. Do be aware that if you save into a Lifetime ISA instead of enrolling in or contributing to a qualifying pension scheme, occupational pension scheme or personal pension scheme you may lose the benefit of contributions by an employer to that scheme, and your current and future entitlement to means-tested benefits may be affected
  
  
• And finally, don’t forget that ISA tax rules can change in the future and their benefits may depend on your circumstances

Innovative Finance ISAs

Innovative Finance ISAs (which also go by the snappy abbreviation IFISA) were introduced in 2016 to allow people to invest in peer-to-peer lending within a tax-free ISA. With peer-to-peer lending, you are lending your money directly to borrowers in return for interest so your ISA will contain peer-to-peer loans.

• You can invest your entire annual £20,000 ISA allowance into an Innovative Finance ISA
• Because of the loan element to an Innovative Finance ISA, you may not be able to get your money out instantly
• Innovative Finance ISAs are considered higher risk because your money is in peer-to-peer investments
• As Innovative Finance ISAs are not protected by the Financial Services Compensation Scheme, you could lose your money or find it hard to get back from a company that goes bust
• You should carefully consider where your money is being invested before choosing an Innovative Finance ISA

Junior ISAs

These are ISAs for kids. You can choose from a cash or a Stocks & Shares ISA and invest up to £9,000 a year. The account has to be opened by a parent or guardian but once it is open, anyone can contribute. The money can’t be withdrawn until a child turns 18, at which point we’ll be in touch about converting it from a Junior ISA to a fully-fledged ISA.