How do ISAs work?

Learn about your options

You've heard that Individual Savings Accounts are a good way to save or invest your money tax-efficiently – and it's true.

You can spread £20,000 of your money across the different ISAs you own. And you can potentially beat the rising costs of living as well as the low rate of returns from regular saving accounts.

Find out what you need to know with our easy-to-read guide.

What are the ISA rules?

You must be at least 18-years-old to open an ISA. And you can only open and put money into one of each type of ISA every year.

For example, you can only open one stocks and shares ISA this year, but you could also open a Junior ISA (JISA) for under 18s if you want.

You may also be able to transfer an existing ISA from one provider to another. You may have to pay a fee to do so however, depending on your provider.

What's my annual ISA allowance?

Your annual allowance for ISAs from all providers this tax year is £20,000. You won't pay any Income or Capital Gains Tax on the profits you make from these investments.

You also have a tax-friendly allowance of £9,000 with a JISA. This is separate from your ISA allowance. Jump ahead for more information on our JISA.

Remember, the total amount you pay into all your ISAs – excluding the JISA – must add up to no more than £20,000 a year. So, if you pay into one cash ISA and one Stocks and Shares ISAs this year, you can't pay in any more than £20,000 in total.

You get a new allowance every year. You do not have to use your full ISA allowance, but you cannot carry over any portion of the allowance you have not used that year. 

For instance, if you've still got £10,000 of your allowance to use, you cannot add it to next year's allowance of £20,000 for a total of £30,000.

You have until 5 April each year to use your full ISA allowance.

What's a flexible ISA?

Some ISAs are 'flexible'. For example:

  • Say you put £10,000 into an ISA this year, and you withdraw £3,000
  • A flexible ISA will let you put up to £13,000 into your ISA this year. That's the remaining allowance of £10,000 plus the £3,000 you took out
  • But a non-flexible ISA won't let you do this. You'll only be able to put in the remaining allowance of £10,000

You can pay back the money you withdraw from your flexible ISA. However, you need to make sure you pay it back in during the same tax year you take it out.

What's the minimum ISA contribution?

The minimum amount you can put in an ISA depends on which ISA you open, and who your provider is.

For example, you can start with a minimum lump sum of £500 – or pay in at least £25 a month – into our Stocks & Shares ISA

Some providers have an even lower minimum. For instance, you can open a stocks and shares ISA for £1 with our partner Wealthify

You're probably keen on the idea of opening an ISA already – but first you need to know the ISA rules.

What kind of ISAs are there?

Take a look, and see what’s most suitable for you. 

Stocks and Shares ISA

Your money can be invested into a range of assets with a tax-efficient stocks and shares ISA.  It's a more long-term option than cash ISAs, and can provide better returns on your money. 

Many stocks and shares ISAs will let you invest in active funds and passive funds.

  • Active funds have a fund manager who makes the investment decisions on your behalf. Their goal is to beat the overall returns of an investment benchmark or index
  • Passive funds aim to track or replicate market performance. The fees and charges are generally lower than for managing active funds

Both types of fund will invest your money in a range of stocks and shares in various sectors. This means you do not need to do the hard work of picking individual investments yourself.

You’ll find funds for every type of asset, from low-risk UK government bonds or gilts, to higher-risk shares from global stocks.

Remember, the value of your investments will fall as well as rise. You can get back less than invested.

For more information on why investments go up and down in value, read our article how to understand risk.

Jump ahead to learn more about our Stocks and Shares ISA.

Cash ISA

You can earn interest on your money in cash ISAs without paying any tax. Many providers offer easy access to your money, making them useful for short term savings.

Keep in mind, research by asset management firm Schroders says the real value of cash ISAs have fallen almost every year between 2009 and 2017. 1 This is because of a combination of inflation and low saving returns, which have made it harder to keep up with the rising cost of living. 

If you want a potentially better rate of return, take a look at investment ISAs instead.

Innovative Finance ISA

Invests your money in peer-to-peer loans. However, your money isn't protected by the Financial Services Compensation Scheme with this kind of ISA.  Alternatively, up to £85,000 of your money may be protected by the FSCS in our investment ISAs.

Lifetime ISA

You can open a LISA if you're aged 18-39 and are saving for your first home or your retirement. The government will pay you a 25% bonus up to £1,000 a year on the money you invest.

However, you'll pay a penalty if you want to withdraw your money for any reason other than your first home or retirement. So, consider your future plans and whether you'd be better off with a different type of ISA.

Junior ISA

You can open a junior ISA (JISA) for your child under 18. The returns may be higher over a medium to long term than cash ISAs, and ISAs are a great way to give your little ones a head start in life. Find out more about the tax-efficient junior ISA.

What ISAs do we offer?

We offer both stocks and shares ISAs and junior ISAs. Our Stocks & Shares ISA offers two different approaches depending on what you want.

Our Stocks & Shares ISA

You can open a stocks & shares ISA with us to potentially grow your money for use at a later date. You can invest with the aim of simply growing your money, or you can invest for a regular income to withdraw from. Or, you can invest for a mix of both.

Our Junior ISA

You can invest up to £9,000 a year for your child or grandchild, and it does not count towards the £20,000 ISA allowance. Your money will be locked away, ready to transfer to your dependent when they reach 18 years old.

Remember, the value of your investments will fall as well as rise, and you can get back less than invested.

Where do I start?

Let us show you more about our Stocks & Shares ISA, Wealthify's ISA and the Junior ISA.

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