The Difference Between ISA Accounts

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There are many different types of savings accounts available to people today. The ISA, or Individual Savings Account, is just one type that individuals can open. You are allowed a maximum allowance of £20,000 in your ISAs each tax year. This money can be contained in up to four different types of ISA accounts. This means that you can hold a cash ISA, stock and shares ISA, innovative finance ISA, and Lifetime ISA concurrently, so long as your savings do not amass higher than your allowance.

Cash ISA

A Cash ISA allows individuals to store and save their money, as they would with a general savings account. Unlike normal bank accounts, the cash ISA may have a higher level of interest, which is why it can be lucrative for those who want to build their money up a bit quicker.

The now-defunct Help to Buy ISA was one type of cash ISA that allowed individuals to save for a house deposit where the government would give them an extra 25% on top, up to a maximum of £12000. This scheme ended in 2019, however, those with accounts can still benefit from the additional funds.

Stocks and Shares ISA

A stocks and shares ISA will allow an individual to invest their money, the same way a person would generally on the stock market or by buying shares. While, unlike the cash ISA, there is no guaranteed payment, you are also not limited on your earning potential. You would choose where the money should be invested, and any returns you make would be free from any taxation.

Innovative Finance ISA

The Innovative Finance ISA relies on Peer to Peer (P2P) lending to give you a high rate of interest. This removes banks from the equation, using your money to finance someone else. Their repayments give both your money back, as well as the interest. There is a significant risk attached to this ISA, as your money would not be protected. If there is a guarantee in place in the form of collateral, you should be able to at least get your money back, however, there is a chance you may still lose some, or all, of your initial investment. A user of this ISA would need to weigh up the risk against the potentially high interest that they would not see in another type of ISA.

Lifetime ISA

The Lifetime ISA can be opened by anyone aged between 18 and 40 years of age. Up to £4,000 per year can be invested, and the government will add a further 25%. From the age of 50, you can no longer make payments or gain that 25%, but will still accrue general interest. The money in this account can be accessed when buying a first home, if you become terminally ill with less than a year to live, or when you reach the age of 60. Withdrawals for other reasons will accrue a 25% charge.

Having savings in an ISA can be useful for you and your family. In depth research, and speaking to a financial advisor, can help you find the most suitable form of savings for you.