Choice is a good thing — especially when it comes to growing your money. That’s why the array of saving and investment options available isn’t to be sniffed at. Of course, it also leaves you with a decision to make!
ISAs (Individual Savings Accounts) are one of the most tax-efficient ways to save or invest in the UK — with a variety of options to suit different financial goals. Knowing your needs and ambitions can help you figure out which ISA, if any, will work for you.
That’s why we’re breaking down the key features and rules of ISAs, from Cash ISAs to Stocks and Shares ISAs (and others in-between), helping you navigate the options and choose the right one for your needs.
- What is an ISA?
- The different types of ISA
- Comparing Cash, Stocks & Shares, Lifetime, and Innovative Finance ISAs
- What is the ISA Allowance?
- Can you have multiple ISAs?
- How do I transfer an ISA?
- Which ISA is right for me?
- How to open a JISA?
- Summary
What is an ISA?
An ISA is a tax-efficient ‘wrapper’ that allows you to save or invest without paying UK tax on the interest or gains you earn.
Introduced in 1999, ISAs were designed to encourage more people to save by offering a simple way to protect their savings from tax. Unlike with typical savings, where the interest is deemed taxable income, the money held within an ISA is completely free from both Income Tax and Capital Gains Tax.
There are various types of ISAs, including Cash ISAs, Stocks and Shares ISAs, and Lifetime ISAs, each offering different benefits depending on your savings or investing goals.
While there is a cap on how much you can contribute to your ISAs each year (for 2025/26 this is set at £20,000 spread across all your ISAs, aside from the Lifetime ISA which is capped at £4,000 per tax year), there is no limit on the amount you can build up in your ISAs over the years. If you do choose to use your allowance across multiple ISAs, it’s your responsibility to ensure you stay within the £20,000 allowance.
The different types of ISA
When it comes to choosing an ISA, there are several types available, each with its own set of benefits, eligibility criteria, and drawbacks. Here's an overview of the four main types of ISAs:
1. Cash ISA
A Cash ISA works similarly to a savings account, but with the added benefit of tax-free interest. You can choose from a fixed-rate Cash ISA, which offers a guaranteed interest rate over a set period, or a variable-rate Cash ISA, where the interest rate can change.
Cash ISAs are ideal for those who prefer a no-risk, easily accessible place to park their money — or for anyone looking to grow money for short-term goals that they’re aiming to achieve in the next five years.
Pros:
- No risk, as your money is not invested in the stock market.
- Tax-free interest on savings.
- Flexible, with some providers, such as Wealthify, allowing easy access to your funds as you can withdraw and replace funds within the same tax year, without affecting your annual ISA allowance.
Cons:
- Interest rates are often lower compared to other investment options, which could be affected by inflation which may erode purchasing power over time.
- Limited potential for growth compared to a Stocks and Shares ISAs.
2. Stocks and Shares ISA
A Stocks and Shares ISA allows you to invest your money in the stock market without paying Income Tax or Capital Gains Tax on any profits you make.
This type of ISA is suitable for anyone with more long-term financial goals (typically five years or more), as the value of your investments can rise or fall.
Pros:
- Potential for higher returns compared to a Cash ISA.
- Tax-free on all capital gains and dividends.
- Wide range of investment options, from company shares to bonds and property.
Cons:
- Riskier, as the value of your investments can go down as well as up.
- Not recommended for short-term savings.
- Charges and fees can eat into any returns made.
3. Lifetime ISA
A Lifetime ISA (LISA) is designed for those between the ages of 18 and 39, aimed at helping them save for their first home or for retirement.
The government adds a 25% bonus to your contributions (up to a limit of £4,000 per year) meaning you could receive up to £1,000 in government contributions annually.
However, there are strict rules about when you can access the funds.
Pros:
- Government bonus of up to £1,000 per year.
- Tax-free growth on savings, whether in cash or investments.
Cons:
- Only available to open to those under 40 and can be contributed to up until 50.
- Contributions are limited to £4,000 per year.
- Funds can only be accessed for the deposit for a first home or retirement: withdrawing for other reasons incurs a 25% penalty!
4. Innovative Finance ISA (IFISA)
An Innovative Finance ISA allows you to invest in alternative avenues, such as peer-to-peer lending; where your money is lent to individuals or businesses through an online platform.
This ISA offers the potential for higher returns, but also comes with increased risk, as there's a chance the borrower may default on their loan.
Pros:
- Potential for higher interest rates than Cash ISAs.
- Tax-free interest earned on the loans you provide.
Cons:
- Higher risk of borrower defaults.
- Not covered by the Financial Services Compensation Scheme, meaning the total value of your invested money could be at risk.
Junior ISAs
In addition to the four adult ISAs, there are also Junior ISAs (JISAs), which are designed for children under the age of 18.
A parent or legal guardian opens a Junior ISA on behalf of the child and manages it until they reach adulthood. The money cannot be accessed until the child turns 18, at which point the registered child gains full control of the account.
You can choose either a Junior Cash ISA or a Junior Stocks and Shares ISA, depending on your child’s needs. Wealthify offers the latter if you’re interested in investing in your child’s financial future. The annual allowance on a Junior ISA is currently set at £9,000, and this is separate from a parent’s own personal ISA allowance.
Comparing Cash, Stocks & Shares, Lifetime, and Innovative Finance ISAs
Let’s break down the key features of each ISA type to help you understand how they differ, and which one might best suit your financial goals.
Below is a comparison table that highlights the key points you need to know about Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs, Innovative Finance ISAs, and Junior ISAs.
What is the ISA Allowance?
The ISA allowance is the maximum amount you can contribute to your Individual Savings Accounts within a single tax year while still enjoying tax-free interest, income, or gains.
For the 2025/26, the total ISA allowance is £20,000. This can be split across various types of ISAs and different providers, allowing you to diversify your savings and investments.
You have the flexibility to decide how you want to allocate this allowance. You could choose to place all of it into a Stocks and Shares ISA, or divide it between a Cash ISA, Stocks & Shares ISA, and an Innovative Finance ISA, as long as the total contributions do not exceed £20,000.
The only exception to this is Lifetime ISAs, which have a separate contribution limit: you can only contribute up to £4,000 per year in a Lifetime ISA and they are restricted to one per person. However, you are free to deposit up to the remaining allowance of £16,000 into the other types of ISA in the same tax year. It is also worth noting that your personal allowance is kept separate from your child’s allowance if they have a JISA.
When does the ISA allowance reset?
The ISA allowance resets every tax year, which runs from April 6th to April 5th. If you don’t use the £20,000 allowance within the tax year, you’ll lose the unused portion, as it cannot carry over to the next tax year. After April 5th, your allowance resets for the next year.
What happens if you exceed the allowance?
It is the individual’s responsibility to monitor and ensure they don’t go over the allowance amount.
If you accidentally exceed your ISA allowance, either your ISA provider or HMRC will work with you to resolve this.
To prevent exceeding the limit, make sure you track your contributions across all your ISAs, especially if you're using multiple providers.
Can you have multiple ISAs
Yes, you can have multiple ISAs, as long as you stay within the annual £20,000 allowance. You can open more than one ISA and even hold accounts with different providers.
However, the total amount contributed across all ISAs in the same tax year (April 6th – April 5th) must not exceed the overall allowance amount, noting the Lifetime ISA cap (£4,000).
You can also hold these ISAs with different providers — and even transfer these accounts between providers.
For instance, if you have a Cash ISA but decide to move into a Stocks & Shares ISA, you can transfer the balance over. However, it’s important to follow the official ISA transfer process. If you withdraw funds and deposit them into a new ISA yourself, you could lose the tax-free status on that money.
How do I transfer an ISA?
Transferring an ISA is a simple process, just make sure you follow the guidelines, so you don’t lose the tax-free benefits.
You may want to transfer your ISA for a hatful of reasons, such as better interest rates, lower fees, or a more suitable type of ISA for your financial goals. Here are some things to consider:
- Better fees or interest rates
- An ISA type that is better suited to your needs
- Provider incentives (always check terms and conditions before making a decision)
- More flexibility
If you’ve decided you’d like to transfer your ISA, you could follow the steps below to get started:
- Research providers. Look for providers that offer better rates, lower fees, or more suitable investment options.
- Check current provider’s terms. Review any exit fees or penalties for transferring out of your ISA.
- Fill out the transfer form. Contact the new provider and complete their transfer form. Do not withdraw the funds from your ISA yourself, as this will cause you to lose the tax-free status of the money.
- Initiate the transfer. The new provider will handle the process of transferring your funds and will coordinate with your current provider.
The amount of time it takes to transfer your ISA will depend on the type you have:
- Cash ISAs.
Transfers typically take around 15 working days. - Stocks & Shares ISAs.
These transfers can take up to 30 calendar days.
Innovative Finance ISAs can take longer still, so check with your new provider for specific timelines.
At Wealthify we can accept transfers of Cash ISAs, Stocks and Shares ISAs, and Innovative Finance ISAs as long as the investments are sold and transferred to us as cash. As always, this is best managed via the ISA transfer form.
With Lifetime and Junior ISAs there are more specific rules to take into consideration. For example, you can only contribute to one Lifetime ISA per tax year – though the same transfer rules still apply.
Be aware that some providers may charge exit fees, and for investment ISAs there’ll be a window when you are ‘out of the market’ during the transfer period, so check these details before initiating a transfer.
If the transfer takes longer than expected, you can contact your provider or escalate the issue to the Financial Ombudsman if necessary.
Which ISA is right for me?
To pick the right ISA for you, there are a number of things you should take into account. These include your financial goals, risk tolerance, and how long you plan to keep your money in the chosen ISA.
Here’s some questions to help you decide:
What are you saving for?
- Saving for a house. If you're a first-time buyer, a Lifetime ISA (LISA) may help you save for a home, with a 25% government bonus on your contributions. Cash or Stocks & Shares Lifetime ISAs are available depending on your risk preference.
- Saving for retirement. Stocks & Shares ISAs or Stocks & Shares Lifetime ISAs are options for long-term retirement savings, offering potential growth over time. (If you want to save for retirement another way, you could also look into a Self-Invested Personal Pension — read more about this in our blog: The Benefits of a SIPP)
- General savings. Cash ISAs are suitable for those who want low-risk, tax-free interest on their savings. Typically used for money you might need in the next five years (like an emergency fund).
Would you prefer to invest or save?
- Saving. Cash ISAs are low-risk and with the option of fixed or variable interest rates.
- Investing. Stocks & Shares ISAs provide the potential for higher returns but come with risk. These are generally for those comfortable with market volatility. For more information, please read our blog ‘should I save or invest my money?’
How long would you like to keep your money in the account?
- Short-term. If you’re likely to need quick access to your funds, an easy-access Cash ISA – like the one we offer at Wealthify – could be a good option.
- Long-term. Stocks & Shares ISAs or Lifetime ISAs are for those who are aiming towards longer-term goals, offering greater growth potential.
Do you have children?
If you're saving for a child, you could consider a Junior ISA. This allows you to save tax-free for a child under 18, either as savings in a Junior Cash ISA or as investing in a Junior Stocks and Shares ISA.
How to open a JISA
Once you know which JISA looks like the right fit for you and your child, opening one is easy. Just follow these three simple steps:
- Eligibility. Ensure you meet the requirements, such as being a UK resident, over 18, and having a National Insurance number. Please refer to comparison table above for fuller details on eligibility.
- Choose a provider. After you’ve done your research, select a provider based on fees, features, and customer service.
- Complete the application. Open the JISA and fund it with your desired contributions. For transfers, you’ll need to complete the transfer form.
Summary
Whew. We’ve covered a lot. With ISAs explained fully, we’ve learned:
- What an ISA is.
- The different types of ISA: Cash, Stocks and Shares, Lifetime, Innovative Finance, and Junior.
- The £20,000 allowance limit for this 2025/26.
- That you can have multiple ISAs and also transfer between providers.
- What to consider when deciding which ISA is right for you.
- How to open an ISA.
With all of that in your back pocket, you can decide which ISA type feels right to you. If you’re looking to get started with saving for a shorter-term goal, our easy access Cash ISA could be a great way to start building towards those goals.
Or, if you’re planning for the longer term, our flexible Stocks & Shares ISA allows you to select your appetite for risk and even the choice to select an Ethical Plan. We also offer a Junior Stocks and Shares ISA for those looking to get started on a nest egg for their little one.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Please remember, with investing your capital is at risk. The value of your investments can go down as well as up, and you could get back less than invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
Resources:
https://www.gov.uk/lifetime-isa
https://www.gov.uk/individual-savings-accounts/how-isas-work
