ISAs – no they are not just cash savings!

Ok, so here is a brief recap (or more accurately a “Ctrl C + Ctrl V”) if you haven’t read the “Investments Products” article.

ISAs are tax efficient investments. From my experience, people hear the term ISA and think ISAs just a form of cash savings account – WRONG – this is just one type of ISA.

In the most simple form, an ISA is the term given to savings or investments which have been invested within an ISA “wrapper” – that is, no matter how much the value of the investments increase, no tax is liable from either income or capital gains tax. The current ISA allowance is up to £20,000 per tax year and the government provides this allowance to incentivise people to save and invest long term. This distinction of a “tax wrapper” is key, as an ISA is not a product per se and the “ISA wrapper” can be applied to several types of product, specifically:

Cash ISA – this is a savings account per above but within the ISA wrapper
Stocks and Shares ISA – this is investments in shares and funds but within the ISA wrapper
Lifetime ISA – The Lifetime ISA (LISA) lets you save up to £4,000 every tax year towards a first home or your retirement, with the government adding a 25% bonus on top of what you save and interest earned
Innovative Finance ISA – the newest and perhaps most risky but essentially captures investments in the peer to peer lending space
JISA – this is Junior ISA. An ISA you set up on behalf of a child with a £9,000 a year allowance.