How do ISAs work? | A quick guide to ISAs | Wesleyan (2024)

The different types of ISA

There are four types of ISA available for adults:

  • Cash ISAs
  • Stocks and shares ISAs
  • Lifetime ISAs
  • Innovative Finance ISAs

Parents can also open a Junior ISA for their children, but this doesn’t count towards your personal ISA allowance. It’s held in the child’s name.Find out more about Junior ISAsin our helpful guide.

Below we’ll look at some of the pros and cons of each type of ISA, but remember, what’s right for you and your family will depend on your own circ*mstances. For tailored financial advice, you can book an appointmentwith a Specialist Financial Adviser from Wesleyan Financial Services.

Cash ISA

Perhaps the most simple type of ISA is the cash ISA. It allows you to earn tax-free interest on your cash savings. You can usually choose between a variable or fixed interest rate.

A variable rate cash ISA will usually have a lower rate of interest, but will allow you to withdraw money whenever you need to. A fixed rate cash ISA may provide you with a slightly higher rate, but you might need to leave your money in for a set period of time.

Pros and cons of a Cash ISA…
A low-risk way to save
Some cash ISAs allow instant access to funds
Low interest rates mean little potential for growth

Stocks and shares ISA

In a stocks and shares ISA, your contributions are invested in the stock market rather than held in cash.

Some ISAs will allow you to choose the investments yourself. Others (like our Wesleyan Stocks and Shares ISAand Wesleyan Unit Trust Managers Unit Trust ISA) are invested in funds which are managed on your behalf.

By investing your money, you may be able to grow your pot faster than in a cash ISA - and there’s no tax to pay on any returns from your investments. Like all investments though, there’s an element of risk involved. You could get back less than what you put in.

Bear in mind too that most investment ISAs recommend leaving your funds in place for a minimum of five years. That’s to allow more time for any potential growth.

Pros and cons of a stocks and shares ISA…
Provides greater potential for growth than a cash ISA
No capital gains tax to pay on any investment returns
Investments can go down in value as well as up, and you may get back less than what you put in
Initial and ongoing charges usually apply

Lifetime ISAs

Lifetime ISAs are designed to help young adults save either for their first home or for retirement. They are only available to those between 18 and 39 years old.

You can save up to £4,000 a year in a Lifetime ISA (out of your full £20,000 allowance). The government will add 25% to your contribution, meaning a maximum ‘bonus’ of £1,000 a year.

Remember though, you can only use these savings for one of two things - and both come with conditions. If you’re buying a house with the proceeds, it’ll have to be below the value of £450,000, which can be tricky in some parts of the UK. If you’re saving for retirement, you won’t be able to touch the money until you’re 60.

If you take the money out early, or for any other reason, you’ll be charged 25% of the amount you withdraw. If you’re taking it all out, bonus and all, you’ll actually get back less than the money you paid in.

Pros and cons of a Lifetime ISA…
Government contribution of up to £1,000 per year until your 50th birthday
Contributions limited to £4,000 per year
25% charge for withdrawing early. Full withdrawal outside the contract terms would mean you get back less than you put in.

Innovative Finance ISAs

An innovative finance ISA (IFISA) allows you to invest your tax-free ISA allowance in peer to peer (P2P) lending. That means your money is effectively borrowed by individuals or businesses through a lending platform.

As with most loans, there’s interest for the borrower to pay - and that interest represents your return on investment.

IFISAs can be appealing due to the opportunities to earn high rates of interest, but as with any lending, there’s always the risk of the borrower defaulting on the loan. Not all IFISA investments are protected by the Financial Services Compensation Scheme.

Pros and cons of an IFISA…
Higher interest rates than some other ISA types
Investment could be at risk if borrower defaults
How do ISAs work? | A quick guide to ISAs | Wesleyan (2024)
Top Articles
29 Smart and Simple Passive Income Ideas for 2024 - Shopify UK
The Problem with 0% Financing: What You Need to Know
11 beste sites voor Word-labelsjablonen (2024) [GRATIS]
Christian McCaffrey loses fumble to open Super Bowl LVIII
My Arkansas Copa
Puretalkusa.com/Amac
Self-guided tour (for students) – Teaching & Learning Support
Nyuonsite
Tlc Africa Deaths 2021
Craigslistdaytona
Delectable Birthday Dyes
Seafood Bucket Cajun Style Seafood Restaurant in South Salt Lake - Restaurant menu and reviews
8 Ways to Make a Friend Feel Special on Valentine's Day
People Portal Loma Linda
Summer Rae Boyfriend Love Island – Just Speak News
Guidewheel lands $9M Series A-1 for SaaS that boosts manufacturing and trims carbon emissions | TechCrunch
Are They Not Beautiful Wowhead
Slope Tyrones Unblocked Games
Walmart stores in 6 states no longer provide single-use bags at checkout: Which states are next?
10-Day Weather Forecast for Santa Cruz, CA - The Weather Channel | weather.com
Faurot Field Virtual Seating Chart
Lakers Game Summary
St Clair County Mi Mugshots
Company History - Horizon NJ Health
1 Filmy4Wap In
Beaufort 72 Hour
Bolly2Tolly Maari 2
Astro Seek Asteroid Chart
Sam's Club Near Wisconsin Dells
Craigslist Dallastx
Matlab Kruskal Wallis
RFK Jr., in Glendale, says he's under investigation for 'collecting a whale specimen'
Amici Pizza Los Alamitos
Weekly Math Review Q4 3
Personalised Handmade 50th, 60th, 70th, 80th Birthday Card, Sister, Mum, Friend | eBay
Tal 3L Zeus Replacement Lid
2008 Chevrolet Corvette for sale - Houston, TX - craigslist
Craigslist Boats Eugene Oregon
Busch Gardens Wait Times
Kerry Cassidy Portal
Oppenheimer Showtimes Near B&B Theatres Liberty Cinema 12
Post A Bid Monticello Mn
814-747-6702
Is Ameriprise A Pyramid Scheme
Alba Baptista Bikini, Ethnicity, Marriage, Wedding, Father, Shower, Nazi
Tyco Forums
877-552-2666
Dineren en overnachten in Boutique Hotel The Church in Arnhem - Priya Loves Food & Travel
Steam Input Per Game Setting
What Time Do Papa John's Pizza Close
Pulpo Yonke Houston Tx
Where To Find Mega Ring In Pokemon Radical Red
Latest Posts
Article information

Author: Lidia Grady

Last Updated:

Views: 6041

Rating: 4.4 / 5 (65 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Lidia Grady

Birthday: 1992-01-22

Address: Suite 493 356 Dale Fall, New Wanda, RI 52485

Phone: +29914464387516

Job: Customer Engineer

Hobby: Cryptography, Writing, Dowsing, Stand-up comedy, Calligraphy, Web surfing, Ghost hunting

Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.