What Different Types of ISA are there?
A lot of people hear the word ISA and either aren't sure what one is or immediately think of a cash ISA savings. Some unscrupulous providers are taking advantage of this confusion and selling high risk bonds as if they are cash ISAs without making clear that they are not FSCS protected and could lose an investor 100% of their money. A fixed rate ISA isn't a type of ISA - so very misleading advert!
As with a S&S ISA if your investment performs badly you are not protected by FSCS and can lose money with a IF ISA
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| What Different Types of ISA are there? |
So what different sorts of ISAs are there?
An ISA is effectively just an account that is tax free and anything you put inside it is free of tax on income (interest) or capital gains. There are a number of different types of ISA but they essentially boil down to 3 different types of product you can have inside them. The standard ISA allowance is £20,000 per year which can be split between any of the 3 types below. There are different limits for Help to Buy and Lifetime ISAs as well as Junior ISAs.
- Cash ISA
Most people would only think of cash ISAs as a savings account and not even consider that it's a tax free wrapper as you only ever open a cash ISA as an account directly with a bank or building society and pay your savings in. All interest paid on money in a cash ISA is tax free. A cash ISA is protected by the FSCS and the provider is regulated by the FCA so that you know all the money in the ISA up to £85,000 is guaranteed should the bank get in to difficulty. As well as a standard cash ISA you can also have Help to Buy and Lifetime ISAs with cash inside them.
For many people now a cash ISA is no longer the best option for their savings as you can achieve better rates outside an ISA and get up to £1000 interest tax free too.
For many people now a cash ISA is no longer the best option for their savings as you can achieve better rates outside an ISA and get up to £1000 interest tax free too.
- Stocks & Shares (S&S) ISA
S&S ISAs were introduced at the same time as cash ISAs and allow you to hold shares, funds and corporate bonds inside a tax free wrapper so that you pay no tax on any dividend income or on capital gains when you make a profit. They are far less popular than cash ISAs but have a much bigger impact on the amount of tax you can save. Some people have S&S ISAs with over £1 million in them that is entirely tax free. The S&S ISA demonstrates the ISA wrapper as the container (ISA) can hold many different types of investments that are bought separately once you have the ISA wrapper open. A S&S ISA is protected by the FSCS and FCA but only for certain issues relating to fraud or insolvency. If your investment performs badly you are not protected
- Innovative Finance (IF) ISA
As with a S&S ISA if your investment performs badly you are not protected by FSCS and can lose money with a IF ISA
If you have a Lifetime ISA or Junior ISA then they can contain cash or Stocks and Shares.
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