What type of ISA should I get?

The five different ISA types explained

Many people think ISAs are complicated, and that perception isn't helped by the maze of options out there. But ISAs are simply accounts for your savings or investments that are tax-free forever. This guide takes you through the basics of the five different types of ISA. 

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What is an ISA?

The letters stand for individual savings account. And while the name is fancy, the concept is simple: it's just a savings or investment account you never pay tax on. Each tax year, you get an ISA allowance which sets the maximum you can save within the tax-free wrapper.

How much can I save in an ISA?

For the current 2023/24 tax year, the maximum you can save in an ISA is £20,000

You can choose whether you want to invest the whole lot in to one type of ISA, or whether you want to split the allowance between different types. However, even if you choose to split it, you can't invest more than a total of £20,000 across the different types.

You must save or invest by 5 April – the end of the tax year – for it to count towards that year's allowance. Crucially, any unused allowance doesn't roll over – so if you don't use it, you lose it forever. You'll get a new allowance on 6 April each year when the next tax year starts, but won't be able to contribute anything new to the old ISA.

Any savings or investments which stay within the tax-free ISA wrapper will continue to earn interest (or see investment growth/loss) and reap the tax benefits until you withdraw the money.

What are the different types of ISA?

We've done a quick table here to show you an overview of the five ISA types, who they're for, and how they compare, as some have different maximum allowances and some allow you to save in complete safety whereas others put your cash at risk. However, there are a lot of nuances that the table can't go in to, so click the links to jump to full info about each type...

How the different types of ISA compare

TABLE_CELL_STYLE Age to open Annual deposit limit Savings at risk? Withdrawal restrictions Government bonus?
Cash ISA 16+ £20,000 No No, unless you fix No
Stocks & Shares ISA 18+ £20,000 Yes No, but may incur fees No
Lifetime ISA 18-39 £4,000 Depends Yes Yes, 25%
IFISA 18+ £20,000 Yes Depends No
Junior ISA 0-17 (1) £9,000 Depends Yes No

(1) If your child is aged 0-15, you will need to open the junior ISA for them. If they're 16 or 17, they can open it themselves.

The five different ISA types explained

This section explains the main features of each of the five types of ISA then links you out to our more in-depth guides. Scroll down, or use these links to skip to the section you're most interested in:

Cash ISAs - risk-free, tax-free savings

Use a standard savings account, and if you've large amounts of savings, you may have to pay tax on the interest if you go over your personal savings allowance (£1,000 in interest for basic-rate taxpayers, £500 for higher-rate).

But with a cash ISA, there's NEVER tax to pay on interest. Plus, any interest you earn in a cash ISA doesn't count towards your personal savings allowance, so if you'll earn a lot of interest you can protect more of it in an ISA.

Just like normal savings accounts, there are a variety of cash ISAs...

  • Easy-access cash ISAs. These do what it says on the tin - you put your cash in, and you can access it whenever you need, for no penalty. 

  • Notice cash ISAs. Here, you need to give a certain number of days' notice to withdraw your cash. They're best if you may need access but you can wait for your cash. 

  • Fixed rate cash ISAs. Fixes tend to offer higher rates than easy-access or notice ISAs, though if you do then need to access your cash, you'll usually have to pay an interest penalty.

  • Help to Buy ISAs (no longer available to new applicants). These ISAs were designed to help first-time buyers get on the property ladder via a 25% bonus (max £3,000) from the state. You can no longer open a new one, but you can still switch an old one to a new provider. For full details, see Top Help to Buy ISAs.

Is a cash ISA worth it?

The personal savings allowance (PSA) means all savings are automatically paid tax-free. Basic 20% rate taxpayers can earn up to £1,000 interest a year without needing to pay tax on it, higher 40% rate taxpayers £500 (top 45% taxpayers will always pay tax on savings).

For most people that will be enough to make all their savings tax-free, and therefore the question is simply "what pays the highest rate?"

The answer to that isn't always cash ISAs – when looking at normal savings compared to ISAs, savings usually pay more. However, there are a few situations when a cash ISA's worth it, especially for those with a large amount in savings. For full info, see our Cash ISA guide

Savings up to £85,000 per person per financial institution are safe in a cash ISA

The savings protection works the same for cash ISAs as it does for normal savings. So provided your money is in a UK-regulated bank or building society account, £85,000 of it is protected under the Financial Services Compensation Scheme. 

While that sounds simple, the exact rules are more complex. For full info, see the detailed Are Your Savings Safe? guide.

For full details of how cash ISAs work and the top-pick accounts, read our Cash ISA guide.

Stocks & shares ISAs - tax-free investments, though watch for fees

You can also use your ISA allowance to invest. This type of account is called a stocks & shares ISA, where you can invest in funds (shares or bonds from various companies pooled into one investment), bonds (basically a loan to a company or a government), and shares in individual companies.

Remember, there's ALWAYS a risk involved when investing, as the value of your investments can go down as well as up depending on how well your funds, bonds and shares do. The general consensus is that it's a long-term game – you should put money away for a minimum of five years to smooth out any ups and downs. 

You'll also usually have to pay a few different fees associated with stocks & shares ISAs, including:

  • Platform charge. This can either be a flat fee (best if you'll invest a lot) or a percentage of the value of your funds (great at the start, but more costly the more you invest).
  • Annual management charge. This is the charge by the actual manager of the fund held within your stocks & shares ISA. This is always a percentage and can typically vary from 0.1% to 1%+ per fund.
  • Trading fees. This is the cost every time you buy or sell shares or funds. These can be anything from £0 to £25. So if you're an active trader, looking for a low trading charge should be a high priority.
  • Transfer out fee. The cost involved in moving your stocks & shares ISA from one platform (provider) to another - often around £25 to £50, though some platforms don't charge it. 

When you start saving in a stocks & shares ISA, it's likely you won't actually see any advantages in doing so over just investing your cash through one of these platforms without opening an ISA, as you've various tax-free allowances around investing anyway.

Yet, if you'll keep adding to your investment over long periods, it's best to do that within a stocks & shares ISA, as the protection from the ISA wrapper is permanent. Advantages of a stocks & shares ISA over a non-ISA investment account include...

  • Exemption from capital gains tax (CGT). This is a tax on profits which you only pay when you sell your investments. Everyone gets a fairly decent £6,000 a year allowance - meaning they can make this much profit every year from shares or stocks or property before being hit by this tax.

    Yet, if you've invested for a long period and you've large holdings of shares or funds that you sell for a big profit, this could affect you. This is why it's wise to start (and continue) investing through a stocks & shares ISA.

    Note: from April 2024 the threshold for paying tax on capital gains will be lowered to £3,000.

  • Exemption from tax on bond interest. If you're investing in bonds, a stocks & shares ISA will shelter the interest you get from the taxman.

  • Exemption from tax on dividend income. Inside an ISA, you don't pay tax on dividends whether you earn 1p or £10,000. Outside an ISA, you only get a £1,000 dividend income allowance every year - earn more than this and you'll pay tax.

    Again, going over your dividend allowance is unlikely when you start to invest, but could affect you if you've added to your investments over the years. Plus, with the threshold on tax-free dividends set to be lowered to £500 starting April 2024, this could be something to bear in mind.

Your savings aren't protected from losses if you invest in a stocks & shares ISA

If you put money in a stocks & shares ISA, then invest it in funds, shares or bonds, then it's a 'risk-based investment', NOT savings. So, if the things you invest in don't do well, you could lose money - perhaps even all of it. There's no protection if this happens.

However, there's some protection under the Financial Services Compensation Scheme but this only applies if you lose money due to the product provider of the investment going bust – for example, if you've got a stocks & shares ISA with a bank, and the bank goes bust.

Yet in many cases if you're buying shares or funds through a provider – eg, some will just sell you shares or funds without them owning the funds – the fact that provider went bust wouldn't actually matter. You'd still own the shares or be invested in the funds, so there'd be no compensation.

For more information about investment protection, see our Are Your Savings Safe? guide.

For the cheapest way to invest tax-efficiently, read the Stocks & Shares ISA guide.

Lifetime ISAs - a 25% boost if saving for first home or retirement

Lifetime ISAs were launched in 2017 to help people save for their first home, or for retirement.

But, they're a bit of an oddity in the ISA spectrum, as you only have a £4,000 limit each tax year. So, while you can put the full £20,000 allowance in to a cash ISA, a stocks & shares ISA or an innovative finance ISA, here you're limited to £4,000. There are two different types of Lifetime ISA:

  • Cash Lifetime ISAs. This may be the better choice if you're saving for your first home and you're planning to buy within the next couple of years as you'll be sure of how much money you have and there's no risk to your savings.

  • Stocks & shares Lifetime ISA. As ever when you're investing, you should be in it for the long term, to allow you time to ride out any dips in the stock markets. So, it may be better to opt for this if you're saving for retirement, or if buying your first home is a long way off and you're comfortable with some risk to your capital in the meantime. 

You can save the £4,000 as a lump sum or by putting in cash when you can. Then the state will add a 25% bonus on top each month you've saved something. So if you save £1,000 you'll have £1,250 and if you save the full £4,000 each year, the bonus will take it up to £5,000. And that's before interest or investment growth. The key need-to knows...

  • You can only open one if you're aged 18-39. Once you hit your 40th birthday, you can pay in till you're 50, but you won't be able to open a new account (except to transfer).

  • You can only withdraw cash if you're buying your first home or you're 60 or over. Withdraw at any other time and you face a penalty of 25% (so effectively an overall loss of over 6%). 

If you've saved the maximum £4,000 in a Lifetime ISA in any tax year and you've spare cash left over to save, you can also hold one or more of the other types of ISA in this guide - though remember that your allowance for those will be a maximum of £16,000 in the same tax year.

Your savings are safe in a cash LISA, though they're at risk in a stocks & shares LISA

If you opt for a cash Lifetime ISA, your savings are protected the same way as they would be in a normal cash ISA. But if you choose a stocks & shares LISA, you're not protected from investment losses. Read more about how stocks & shares ISAs are protected.

For full information on how Lifetime ISAs work, see our LISA guide.

Innovative finance ISAs - lend to others and get interest tax-free

Invest in an innovative finance ISA (IFISA) and the company offering the ISA will use your money to lend to borrowers or businesses (this is often known as peer-to-peer lending). Here are the key need-to-knows...

  • You get interest for lending your money out. The idea is that you get interest back which is a proportion of the interest rate charged to the borrower for their loan. It's usually not the whole rate, as the ISA provider will take a cut.

  • Lending through an IFISA means your interest isn't taxed. You can lend like this without it being in an ISA wrapper, but if you do open an ISA it means any interest you get from lending money to other people (or companies) isn't taxed.

  • You may lose money if the people you've lent to can't repay. The fact you're lending the money means there's a chance the borrower won't repay. Risks are mitigated by spreading your cash across multiple loans, or with provider-backed safeguard funds. However, if a lot of your borrowers defaulted, it's likely your savings could take a significant hit. 

  • It can take a while to get your money back if you want to withdraw. You often need to wait until other investors are there to buy you out of your loan. This can be quick, especially in a good economy, but we saw during the coronavirus pandemic that a lot of peer-to-peer investors were trying to sell their loans and needed to wait several months to do so.

Your savings aren't protected in an innovative finance ISA

Any money you've invested with an innovative finance ISA provider that's loaned out to borrowers doesn't have any protection. The IFISA provider may have a safeguard fund that'll help mitigate any losses, but they don't have to have this.

Even for the ones that do have a safeguarding fund, it's unlikely to be large enough to protect everyone's cash in the case that a large scale slump in the economy meant that a significant proportion of people couldn't pay their loans back. So, if you're planning to invest in an IFISA, only put in money that you could afford to lose if things went badly. 

While this isn't an area MoneySavingExpert covers, if you do want to look into innovative finance ISAs more and see what's out there, Money and Isa.co.uk compare a few options. Though we can't vouch for how much due diligence these sites have done, and due to the high risk involved with this type of product, it's worth speaking to a financial advisor before opening an IFISA.

Junior ISAs - save for your child's future

There's a version of the ISA for kids called a junior ISA (JISA). Just like the adult version, it allows you to save tax-free, on behalf of a child. You can save or invest for your child, or do a bit of both. In brief...

  • You can save up to £9,000 a year (for 2023/24) into a JISA. This is less than a half of the adult ISA allowance, but it is a separate allowance - so you could save £20,000 in your ISA, and £9,000 into your child's junior ISA in the same tax year.

  • You can divide the annual JISA allowance between cash JISAs and stocks & shares JISAs. So you can put it all in cash or all in stocks & shares (or any mix of the two).

  • Children can't touch the money until they turn 18. The account is held in the child's name but is opened and managed by you. The child can take control at 16, but can't touch the cash until 18 (at which point it's their cash, not yours).

    So while you might have saved it to fund their uni costs, or a deposit for their first home, they could decide to blow it all on partying – and you wouldn't be able to stop them.

  • Your child can only hold a cash JISA with one provider. And it works the same with a stocks & shares JISA. This means you top up with the same provider each year. If you're unhappy with the provider or you spot a better deal somewhere else, you can always transfer your child's JISA to another company - but you have to transfer the whole lot.

Note: An odd quirk of the ISA system is that if your child is 16 or 17, they get two ISA allowances – the junior ISA allowance PLUS the adult cash ISA allowance of £20,000.

What to do if your child has a Child Trust Fund...

Child Trust Funds (CTFs) were the forerunners of junior ISAs and were opened for kids born between September 2002 and January 2011. 

Anyone with a Child Trust Fund can now transfer it to a JISA account. In most cases, this will be the right thing to do, but not all. To check whether it's the right choice for you, read our Child Trust Fund guide.

Your savings are safe in a cash JISA, though they're at risk in a stocks & shares JISA

If you opt for a cash junior ISA, your savings are protected the same way as they would be in a normal cash ISA. But if you choose a stocks & shares junior ISA, you're not protected from investment losses. Read more about how stocks & shares ISAs are protected.

For full information on JISAs, see our Junior ISA guide.

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You can move your ISA to a new provider, but don't withdraw the cash yourself to do the transfer

There's nothing stopping you switching between providers of the same ISA type to get a better deal. In fact, to make sure you're getting a top rate all the time, this will be essential, especially for cash ISAs.

And you can also switch between the three main ISA types - cash ISAs, stocks & shares ISAs and innovative finance ISAs - if your saving or investing priorities change too. Yet it's not as simple as switching a standard savings account, as transferring an ISA is technical.

But, as long as you abide by our golden ISA transfer rule, it should go smoothly:

Never withdraw the money yourself if you're transferring! You'll immediately lose all the tax benefits.

Instead, speak to the new provider and fill out a transfer form. Your new provider should then sort it all out, including contacting your current provider, and moving the money over for you.

You can also transfer over previous year's ISA savings too - this is especially useful if you've several different ISAs from previous tax years and you want to consolidate them in to one easy-to-manage account. 

Watch out for fees and interest penalties

You may need to pay these on some products to leave your current provider. They're most common on:

  • Fixed cash ISAs. Here you'll pay an interest penalty of between 30 and 365 days' worth if you want to transfer before the fixed term expires. However, there shouldn't be a charge if the fixed term has already elapsed. 

  • Stocks & shares ISAs (including stocks & shares versions of the Lifetime ISA and Junior ISA). Usually S&S ISAs have exit fees, usually around £25-£30.

    However, if you're trying to transfer all the funds 'in-specie' (ie getting the same fund but with another ISA provider) you're likely to need to pay this much per fund you're transferring. It's usually easier to cash in all the investments and transfer them over as cash, then reinvest with the new provider. 

  • Innovative Finance ISAs. Usually you'll be invested in property or your money will be lent out as loans. You can usually decide to sell your investment whenever you want (though check this, especially with property IFISAs), but there may be a fee or an interest penalty to leave, or you may need to wait until someone else wants to buy your investment from you.

Not all ISA providers will accept transfers of previous years' allowances. We tell you which ones do in our various ISA guides (Top cash ISAs, Stocks & Shares ISAs, Lifetime ISAs, Peer-to-peer Lending and Junior ISAs). A cash ISA transfer should take no more than 15 business days. Stocks & shares ISAs shouldn't take more than 30 days.

You can usually withdraw cash from an ISA at any time

Providing the rules of the individual product allow it (there are loads that do), you can have full, instant access to the money you need to withdraw without losing the tax benefits on the rest of your savings within the ISA. Here's how withdrawals work for the five ISA types:

  • Cash ISAs. If they're easy access, you can take money out at will. If they're fixed ISAs, the same applies, but you'll usually need to pay an interest penalty on the amount you withdraw.

  • Stocks & shares ISAs. Here you'll need to sell funds, bonds or shares up to the amount you want to withdraw. It'll then be transferred to you as cash. This may take a few days while the fund, share or bond sales are carried out. 

  • Innovative finance ISAs. Here it may be a bit more complex, as you'll likely need to sell your investments to be able to access your cash. Most providers have markets where other buyers can buy your interest and you can access the cash, but it may be more difficult if more people want to sell than buy. Check the terms of your IFISA to see how withdrawals work.

  • Lifetime ISAs. You can withdraw for free if you're buying your first home or are over 60. If not, then you'll need to pay a penalty to access your cash - this penalty's equivalent to the 25% bonus being removed.

  • Junior ISAs. The money's locked away until your child turns 18. The only exceptions are in sad situations - namely if the child's diagnosed with a terminal illness, or if they die. 

If you withdraw, you can't replace the cash in your ISA later on 

Your annual £20,000 ISA allowance applies to how much you pay in - think of it as a contribution allowance. You don't usually get to pay in more if you withdraw some. An example should help illustrate this...

Let's assume you pay in £20,000 to a stocks & shares ISA at the start of the tax year, in April. In June, you need £2,000 of it for a new boiler as yours just broke. You can sell £2,000-worth of your investments and withdraw that as cash, and the remaining £18,000 will stay invested in your ISA. However, you won't be able to pay in £2,000 later in the year to replace what you withdrew, as you've already used up your full £20,000 ISA allowance this tax year.

Flexible cash ISAs - the exception to the rule...

A few banks offer these, and if your cash ISA is flexible, you can withdraw money from it and then you're free to put it back into the same account in the same tax year without affecting your allowance. See full details in our Flexible ISA guide.

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