ISAs for Beginners: What Are They and How Many Types Are There?

ISA stands for Individual Savings Account, a particular kind of savings account which today represents a whole new way to invest or save money in the United Kingdom. As a matter of fact, this specific savings account represents a way to start investing your savings.

Nowadays more and more people decide to embark on a new investment path instead of just saving with the goal to get a financial return. Investments can be indeed a good way to give money the chance to grow. However, you should never forget that even though investments have a good potential of generating an economic growth, they are also risky and subject to the market’s volatility. This means that when investing your money, you’re giving it the chance to grow but you’re also putting it at constant risk. If you are ready to take this responsibility and want to give your savings a chance to grow, opening an ISA might be a good idea for you. ISAs will in fact let you invest your capital in a tax efficient way. This means that the money you deposit on your account will always be protected from UK tax. That’s one of the many reasons why ISAs are so popular in the UK. Also, everyone over the age of 16 is eligible to open an Individual Savings Account and you can even choose to open one for your underage children. If you want to open a new Individual Savings Account but you don’t know which one is best suited for your situation, keep reading: in the following paragraphs we’ll show you the most common types of ISAs available in the UK.

What types of ISAs are available?

ISAs come in many different shapes in order to meet the needs of as many people as possible. The first kind of account is called Cash ISA, which is pretty similar to a regular savings account. A Cash ISA will let you make contribution in a tax efficient way while complying the annual allowance. On the other hand, a Stock and Shares ISA is designed for investors, because it lets you invest in a great variety of fields such as stocks, shares, bonds and more. People who want to save money for life related purchases can open a Lifetime ISA, which has been specifically designed to help you buy the first house or for saving for retirement. Innovative Finance ISA is a type of ISA that lets you invest in a peer-to-peer lending in order to earn tax free interests. Lasty there’s the Junior ISA, which can be opened by a parent or by a legal guardian to save money for their underage children, who will be able to access their savings as soon as they turn 18.

What is the Annual ISA Allowance?

The annual ISA allowance represent a restriction on the maximum amount that the account holder can put on his account in a tax year. Currently, in the UK this value is set at £20,000 per year for all Individual Savings Accounts and to £9,000 for Junior ISAs. For a better comprehension of this matter, you can also check this article.

What is a flexible ISA?

A Flexible ISA is another type of Individual Savings Account that lets you withdraw and replace your money without affecting the annual ISA allowance. This feature is not available for other types of ISA and it represents a really good option for people who want to have free access to their money.