Several types of ISA contribute to your ISA allowance. You can choose to invest your allowance in one type of ISA or multiple.
Cash ISA
Cash ISAs involve you investing money and receiving interest on this amount. Interest rates can be fixed or variable, and accounts can either be easy access, fixed term, or notice ISAs.
With an easy access account, you can withdraw money whenever you like (subject to minimum withdrawal requirements). But if you withdraw, you will lose the tax-free benefits on the withdrawn funds. If you reinvest the cash you have withdrawn, it will count towards your allowance twice — unless it’s a flexible ISA. We do not offer flexible ISAs at Shawbrook, so if you initially invest £20,000 and later withdraw £1,000, you could not reinvest this within the same tax year as this would exceed your limit.
With a fixed term ISA, you agree to lock your funds away for a set amount of time. Fixed term ISAs will usually pay a higher interest rate.
A notice ISA requires you to tell your provider in advance when you want to withdraw your money. Once you let your provider know you want to withdraw money, you’ll have to wait for your notice period to pass before you’re paid. You’ll agree to the length of your notice period when you first sign up for an account. This can vary, but you’ll typically earn a higher interest rate for a longer notice period.
The cash ISA limit for this tax year is £20,000.
Stocks and shares ISA
Stocks and shares ISAs can pay higher rewards but usually carry greater risks. As the name suggests, your money is invested in stocks and shares. Your capital is at risk as these can go up or down.
You can invest up to £20,000 in a stocks and shares ISA this tax year.
Innovative finance ISA
Sometimes known as an IFISA, an innovative finance ISA involves peer-to-peer lending. With this kind of ISA, you invest your money through an online portal and agree to lend your money to individuals or businesses. It works by borrowers paying your money back with interest. This can offer a higher interest rate than traditional ISAs but comes with more risks, such as a borrower failing to pay.
For the 2023/2024 tax year, you can invest up to £20,000 in an innovative finance ISA.
Lifetime ISA
Lifetime ISAs (also known as LISAs) can only be opened by adults aged 18-39, although you can continue to save in them until you’re 50. After then, you can keep the account open, but you can’t make any more payments into it.
These ISAs are for saving for two major life events — buying a property and retirement. Because of this, you can only withdraw money when purchasing a first home or reaching retirement (when you’re 60 or over).
This different type of ISA forms part of your overall allowance but has a smaller limit. You can deposit a maximum of £4,000 in each tax year. The government pays a £1 bonus for every £4 you save, so you can get a bonus of up to £1,000 a year.
Help to Buy ISA
Help to Buy ISAs closed to new savers in November 2019 but if you have an existing account, you can continue to save in it until November 2029.
Help to Buy ISAs are for saving for your first property purchase. With these, the government will pay £50 for every £200 saved up to £3,000 (which is £12,000 of savings). You will need to claim your 25% government bonus by November 2030.
You can deposit a maximum of £200 per month, which is £2,400 over the whole year.
Junior ISA
Unlike the above, junior ISAs (also known as JISAs) are separate from your ISA allowance. This is because junior ISAs belong to the child, not the adult saving into the account.
They are available as cash ISAs or stocks and shares ISAs.
In the current tax year, the limit for junior ISAs is £9,000. The child cannot withdraw money until they turn 18 when the account automatically becomes an adult ISA.
