You have a £20,000 yearly allowance that you can put into the ISA tax-free wrapper. You can spread this over different types of ISAs or you can focus your money into one type of ISA. Choosing the right type of ISA is important to make sure you make the most of your allowance: but, how do you choose the right one that works for you?
The right ISA for you will depend on what you want your money to do: there are a lot of options to serve various needs. You can read about all the different kinds of ISAs in a more in-depth way on our website.
The Right ISA For…
Access to Cash
If you want to put your pennies into an ISA but want to retain access to those funds, then you’ll want to open an Instant Access Cash ISA.
This money will gain interest in a tax-free wrapper, keeping it safe from income tax and capital gains tax.
While Instant Access Cash ISAs currently have historically low interest rates, they are still a good option if you’re new to ISAs and don’t know where to put your money, and want to make sure you maintain access to your money.
Long-Term Savings
There are some great ISA options when it comes to long term savings, with some potential for excellent returns which are kept safe from capital gains tax and income tax. The two that we want to highlight here are:
Investment ISAs are basically what it says on the tin: they are ISA wrappers within which you can put your money to work in investments. The returns from these investments are tax free. Investment ISAs should be longer term ways of saving because you should try and hold investments for at least five years – to allow for the normal fluctuations in the stock market.
There are a wide variety of different kind of Investment ISAs to choose from, which may or may not be for you depending on what kind of investor you are. These include:
- Ethical ISAs
- ETF ISAs
- Fund Supermarket
- High Income ISAs
- Gold ISAs
- Index Tracker ISAs
- Share Dealing ISA
- Structured Growth ISA
Lifetime ISAs are a specific type of ISA which was intentionally created for long term savings. You can put up to £4000 into a LISA for this tax year and for this the government will put in a 25% bonus to any cash you put in. So, you have the potential to gain £1000 free cash, which is an excellent return rate.
The catch with Lifetime ISAs is that you can only access the cash once you turn 55 or in order to fund a deposit on your first home. This makes them an excellent long-term saving option, with a fantastic return rate that you’ll find tough to beat.
Buying Your First House
For buying a first home, a Lifetime ISA is the best way forward. The previous Help-to-Buy ISA scheme are still valid if you opened one before the end of the scheme (November 30th, 2019), but if you’re looking to open an ISA now with the view towards saving for a new home then you’re going to want to open an LISA.
A LISA has a limit of £4000 that you can put into the account every tax year, and the government will then put in a 25% bonus to however much you have put in – giving you the potential to gain an impressive £1000, which can go a long way to boosting your deposit savings.
You’ll be hard-pressed to find a 25% bonus return in any other account.
Under-18s
Junior ISAs are the only option for having an ISA under the age of 18.
One of the requirements for opening an ISA in the UK is that you have to be over the age of 18 – but, as an adult, if you are the guardian or parent of a child, you can open a JISA for them. This is an account which you can put money into which will gain tax-free returns which the child in question can then access once they reach the age of 18.
This current tax year’s allowance for a JISA is a generous £9000 – that’s a very high allowance for you to put money away for your under-18s to set them up for some financial security at the start of their adult life.
Diversifying your Investments
If you’re an investor, you’ll likely already have Investment ISAs – they’re a great way to invest in a tax-efficient manner.
But, if you’re looking to diversify the kind of investments you have (and you have plenty of investing experience) then you might want to think about a Peer to Peer ISA.
These allow savers can lend money directly to borrowers, getting rid of the middle man and potentially benefiting from a better interest return on their investment.
Many of them offer higher, attractive returns – but they do come with a higher level of associated risk, so it’s important to make sure you’re comfortable investing before you go down this route.