The ISA Guide for Beginners 

Ever wondered what an ISA is and whether one is suitable for you? Confused by all the baffling information put out by the banks? Not to worry, as we’re here to give you the run-down on every aspect of ISAs!  


What is an ISA?  

ISA stands for Individual Savings Account. Basically, every tax year, there is a certain amount that you are allowed to save in an ISA. This means that you can add to a savings account and gain interest without paying income tax on the interest, up to a certain amount every year. For the tax year 2019-2020, the amount you were allowed to save in an ISA was £20,000.  

Different types of ISAs available 

There are many different types of ISAs out there, arguably one to suit everybody! There are ‘cash ISAs’, the most basic form, which is just a savings account on which you pay no income tax on the interest generated. There are ‘stocks and shares ISAs’ for those who want an investment account; this also has a £20,000 allowance as well as tax-free gains, tax-free interest, and no further tax on dividends from investments. ‘Help to buy’ ISAs are aimed at young people who are trying to get onto the property ladder, as they are specifically designed for first-time home buyers. In the first year, you can save £3400, and £2400 every year thereafter; it has a 25% top-up by the government when you get to the point of buying a house, however, this scheme closed on the 30th November 2019. ‘Lifetime cash ISAs’ are also for housing deposits but can also be used as retirement savings accounts- they are only open to those age 18-30 and carry a £4000 allowance, also featuring the 25% top-up from the government. Finally, for those under 18, there are ‘junior cash ISAs’, which have a £4368 allowance with tax-free interest perks.  

How many ISAs can you have? 

This depends on what type of ISA you have. You cannot have two of the same type of ISA open in the same tax year. You can open one and ensure that it is closed before the next tax year if you’d like another one, or alternatively, you can open two of different types in the same year (for instance if you’d like one for savings and one for stocks and shares).  

How much can you put in an ISA? 

This also depends on the type of ISA that you have. Cash ISAs and Stocks and Shares ISAs have a limit of £20,000. Lifetime Cash ISAs have a limit of £4000, and the limit for Junior Cash ISAs is £4368.  

Good news, ISA rates are rising 

ISAs became unpopular for a while due to their low interest rate. Good news, however, as they are not back on the rise. Many high street banks offer very small interest rates, usually around 0.5%. However, if you do your research, there are many banks and building societies out there that now offer up to 2.12% interest on ISAs. If you currently have an ISA and are unhappy with the interest rate, you can easily transfer your ISA to a different bank!


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