What are ISAs?

What you need to know about Individual Savings Accounts (ISAs) and how you can use them to keep growing your money

Tax-free saving and investment

Have you thought about what to do with your Child Trust Fund?

ISAs are a way that you can continue to save some or all of your Child Trust Fund money without having to pay tax on the interest or investment growth you earn.

You can save up to £20,000 this year into your ISAs, and there are several different types available.

Cash vs. stocks and shares

Cash ISAs are a lot like an ordinary savings account. When you save into a cash ISA you can earn interest on your savings. Unfortunately interest rates on easy-access cash ISAs are pretty low at the moment, up to 1.61% in November 2021, according to Money Saving Expert.

Stocks and shares ISAs invest your money in company shares to help you benefit from growth in the value of your investment.

Stocks and shares ISAs tend to offer greater potential for growing your money over the long term - 5 years or more. But when you invest there is always the risk that the value of your investment can go down as well as up. Some stocks and shares ISAs will include cash and fixed interest investments to reduce the risk of that happening.

How ISAs can help you to save for your future

ISAs can be a good way to save or invest without having to pay tax on the proceeds. Find out more about how they work in this video.

Fees and charges

When you invest in a stocks and shares ISA you should carefully consider not only the potential losses and gains, but also the fees and charges. Stocks and shares ISAs often come with several different types of charges, including Annual Management Charges, platform charges, charges for transferring between accounts and other fund costs.

Risk and reward

Some stocks and shares ISAs will invest your money in an investment fund, that helps diversify your investment. The choice is huge and funds come with different mixes of investments. One of the most important things to consider is the trade-off between risk and reward - typically the more risk you take, the higher the potential rewards.

You can get low risk funds that will invest in cash and other fixed interest investments, and others that will invest 100% in company shares. The choice is yours as to how much risk you are comfortable taking with your money.

Are ISAs worth it? We think so

Cash ISAs are a tax-free alternative to traditional bank accounts and can be useful for short term savings goals.

But if you’re working towards a medium or long-term savings goal, over 5 years or more, stocks and shares ISAs offer greater potential for growth.

Any ISA invested in stocks and shares is subject to stock market fluctuations, so while the aim is to grow your money it is possible to end up with less than you started with.

Thinking of buying your first home? Think Lifetime ISA

When you save with a Lifetime ISA the government gives you a 25% bonus if you use the money to buy your first home or for your retirement.

You can save up to £4,000 each year into a Lifetime ISA and benefit from up to a £1,000 bonus from the government.

Lifetime ISAs can come in cash and stocks and shares versions.

Important information

You can only pay into one cash ISA, one stocks and shares ISA and one Lifetime ISA each tax year.

All the ISAs listed here are covered by the Financial Services Compensation Scheme, which means if the savings or investment provider fails you will automatically be compensated up to £85,000. Find out more.

You can find further information on all the different types of ISA available at gov.uk.

Keep growing your money with OneFamily

If you decide that you want to invest some or all your Child Trust Fund in stocks and shares ISAs, then we have two products that can help you do just that.

Find out more about investing in our Stocks & Shares ISA or Lifetime ISA

Find out more

Please note: OneFamily do not provide investment advice. You should always remember when dealing with stocks and shares, whilst they can have good potential for returns in the long run – their values can fall as well as rise. So, there’s always a chance you could get back less than is paid in.