The different types of ISA.

At a glance

  • There are six types of ISA: Cash, Innovative Finance, Stocks and Shares, Lifetime, Help to Buy and Junior
  • The RateSetter ISA is an Innovative Finance ISA
  • Your annual ISA allowance for the current 2019/20 tax year is £20,000
  • You can open one of each type of ISA (Cash ISA, Innovative Finance ISA and Stocks and Shares ISA) every tax-year
  • Your annual allowance can be spread across the three main types of ISA
  • You can use £4,000 of your annual allowance through a Lifetime ISA (LISA) 

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Your ISA options

An individual savings account, more commonly known as an ISA, is a way of saving and investing tax free. ISAs have been around for almost 20 years, and within the last three years there has been an increased number of individuals investing their ISAs. The 2017/18 tax year saw over £600 billion subscribed into adult ISAs.

There are now six types of ISAs that you can invest in: Cash, Innovative Finance, Stocks and Shares, Lifetime, Help to Buy and Junior.

Every tax year you can split your £20,000 ISA allowance across some, or all, of the three main types of ISAs: Cash ISA, Stocks & Shares ISA and Innovative Finance ISA (IF ISA). 

The RateSetter ISA is an Innovative Finance ISA which allows you to maximise your returns by not having to pay tax on them.

Cash ISA

Cash ISAs are like a savings account, but with tax-free earnings. The main types of Cash ISAs are: instant access, regular savers and fixed rate. Cash ISAs are usually provided by high street banks and building societies. Your savings in a Cash ISA are protected by the Financial Services Compensation Scheme (FSCS) for deposits of up to £85,000. Returns through Cash ISAs are usually lower, compared to the other types of ISAs. You can open a Cash ISA from the age of 16. 

Innovative Finance ISA

The Innovative Finance ISA is the newest type of ISA that allows you to invest in Peer to Peer (P2P) lenders, such as RateSetter, tax free. IF ISAs sit between the safety, but low returns, of a Cash ISA and the potentially large returns, but volatility of a Stocks & Shares ISA. Since its launch in 2016 individuals like yourself have put in over £300m into IF ISA accounts. The RateSetter ISA has had over £175m invested since its launch in February 2018. 

Stocks and Shares ISA

Stocks and Shares ISAs are often seen as a longer-term investment (over 5 years). This type of ISA allows you to earn tax-free returns by investing in assets. Returns can be higher than Cash and Innovative Finance ISAs, but Stocks and Shares ISAs are seen as riskier as the value of your investment can fluctuate depending on stock market performance. Anyone 18 years or older who is a UK resident for tax purposes can have an ISA.

Lifetime ISA

You can use a Lifetime ISA to purchase your first home or save for retirement. You can only open this ISA if you’re under 40 years old. Individuals can pay up to £4,000 each year until they are 50 and receive a 25% bonus from the government, of up to £1,000 each tax year. Lifetime ISAs are available through Cash or Stocks and Shares.  

Help to Buy ISA

Savers can use their annual ISA allowance to invest in a Help to Buy ISA The Help to Buy ISA was introduced in 2015 to help first time buyers save towards purchasing their first home. Individuals can receive a maximum tax break of £3,400 in the first year, and £2,400 in following tax years. Like, a Lifetime ISA, the government gives savers a 25% boost of up to £3,000.

Junior ISA

The Junior ISA can be set up by family and friends for any child under the age of 18 living in the UK. A maximum amount of £4,080 can be paid into the account on behalf of the child, as it stands, 907,000 Junior ISA accounts were subscribed to in the 2017/18 tax year.

Please note that tax treatment depends on individual circumstances and may be subject to change in the future.

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