Guide to ISAs

ISAs (Individual Savings Accounts) are one of the most popular ways to save and invest.

They’re easy to understand, flexible, and you don't pay tax whilst you keep your money in your ISA accounts.

There are many ways that you can save or invest, and while we all want our money to grow, it’s important to think about the level of risk you might be willing to take with your money. It's all about achieving a balance.

You could decide to save a manageable amount each month from your take home pay to cover your living costs, larger expenses and the unexpected.

A bank or building society account might be a good home for your money, or you could open an ISA...but what are they and how do they work?

There are 4 different types of ISA:
  • Cash ISAs
  • Stocks and Shares ISAs
  • Innovative Finance ISAs
  • Lifetime ISAs

A Cash ISA is a savings account that allows you to make regular contributions. Unlike a standard savings account, you won't pay any tax on the interest earned within your Cash ISA.

The other main difference between a Cash ISA and a standard savings account is that there is a maximum amount you can pay each tax year into a Cash ISA. 

Find out more information about current ISA limits.

A stocks and Shares ISA gives you the chance to invest. Depending on what your ISA Manager allows, you may be able to invest in:

  • Shares in companies.
  • Unit trusts and Open-ended Investment Company funds (OEICs). See our guide to OEICs for more.
  • Corporate bonds.
  • Government bonds.

A fund is when investors pool their money together to buy a range of assets such as bonds, shares and property. If you have a Stocks and Shares ISA, you can usually select different funds to invest in, plus move your money between these without taking it out of your ISA and losing the tax advantages. It's worthwhile checking with your ISA provider to understand if there are any charges for moving your money between funds.

Please note that the value of an investment can go down as well as up so you might not get back the amount you put in.

An Innovative Finance ISA lets you invest in peer to peer lending. 

Peer to Peer (P2P) lending is a form of investing where you directly lend money to borrowers and businesses through a P2P lending platform. The borrowers then pay back the borrowed amount with interest.

The interest they pay is the return you get on your investment. Please note as this works like a loan, there's a chance the borrowers could default on their repayments.

Find out more information about P2P here.

A Lifetime ISA (LISA) is a tax-free savings or investments account designed to help you buy your first home or save for later life. You must be 18 or over, but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns. 

You can only pay £4,000 into your Lifetime ISA in a tax year.

Of course like any investment, the value can go down as well as up so you might not get back the amount that you put in.

Find out more information about a Lifetime ISA here.

Each tax year you can put money into one of each kind of ISA. You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.

For example:

You could save £12,000 in a Cash ISA and £8,000 in a Stocks and Shares ISA in one tax year.


You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an Innovative Finance ISA and £4,000 in a Lifetime ISA in one tax year.

The above are just examples. You can choose how much to pay in as long as you don't exceed the maximum ISA allowance for the current tax year.

Finally, you can also start an ISA with a single lump sum and not contribute anything else. Alternatively, you can begin with the single lump sum and at the same time start a regular monthly investment. The choice is yours.

Because tax rules can change, the impact of taxation (and any tax relief) depends on your individual circumstances. 

Further information on ISAs can be found on

Whether you're completely new to investing or you've done some research – help is at hand. A financial adviser will look at your needs, discuss the level of risk you're comfortable taking and balance that with the level of rewards you are aiming for. They'll also talk to you about other types of ISAs that may be available to you. Then they'll recommend the options that are right for you.

After all it's their job to be the expert – not yours.

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