ISA stands for Individual Savings Account. ISAs are simply a type of account that people can use to hopefully grow their money either by earning interest or by investing in the stock market.
The main reason people choose an ISA other other types of savings account is that they are tax-exempt. That means you don't need to pay any Income Tax or Capital Gains Tax on the money you take out, no matter how much it's grown.
Because of this, the government limits how much people can pay into ISAs. At the moment, you can put up to £20,000 each tax year in ISAs, but this is reviewed every tax year so could go up or down.
There are different types of ISA to suit different needs:
- stocks and shares ISAs
- cash ISAs
- lifetime ISAs
- innovative finance ISAs.
Stocks and Shares ISAs
Annual limit: £20,000
Stocks and shares ISAs invest your money in funds, which buy various investment assets. You earn returns, rather than interest, depending on how much those assets grow.
No matter how much your money does grow, you won't be charged any tax when you take your money out.
It's a fairly simple way to invest as you choose a fund, rather than individual investments. At OneFamily, we give you a simple choice of three funds, each with a different level of risk.
Stocks and shares ISAs generally give your money greater potential to out-grow inflation, compared to cash ISAs, especially over the long term – five 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 ISA funds will include cash and fixed interest investments to reduce the risk of that happening - two of the three funds we offer at OneFamily do this so you can choose a lower risk option.
Invest your way with a OneFamily Stocks and Shares ISA
Cash ISAs
Annual limit: £20,000
Cash ISAs are a lot like ordinary savings accounts. The money you pay into a cash ISA earns interest. The more money you pay in, the more interest you'll make.
You'll usually know the interest rate when you open the account, but some cash ISAs offer bonus rates for not withdrawing or change the rate if you withdraw a set number of times.
Like all ISAs, you won't pay tax when you take your money out, no matter how much interest you make.
Not everyone needs to pay tax on their savings and, if that's you, your money might grow more in a different type of savings account and you'd still not pay any tax. It's worth checking if you need to pay tax on your savings.
Lifetime ISAs
Annual limit: £4,000
Lifetime ISAs are designed exclusively for saving up to buy your first home or for putting extra money aside for life after 60.
Every time you pay into a lifetime ISA, the government adds an extra 25%. As you can pay in up to £4,000 each tax year, you can get up to £1,000 in government bonus!
You can have a cash lifetime ISA or a stocks and shares lifetime ISA. Technically, you can open one of each but you can only pay into one each tax year.
If you take money out for anything other than buying your first home, the government charges you a 25% withdrawal fee, which could leave you with less than you've paid in (after you turn 60, this charge doesn't apply). It's a good incentive not to dip into your savings but does mean you need to be sure you want to buy your first home or leave your money in your lifetime ISA until you turn 60.
Get up to £1,000 extra towards your first home deposit every year with a OneFamily Lifetime ISA
Innovative finance ISAs
Annual limit: £20,000
Innovative Finance ISAs are a type of peer-to-peer lending. You lend your savings to borrowers in return for a pre-agreed amount of interest, which tends to be higher the longer you keep your money invested.
ISA 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 any 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. You'll be able to check what these are with the ISA provider.
At OneFamily, we keep things simple with just one annual management charge of 1.1% of the ISA value, for both our Stocks and Shares ISA and our Lifetime ISA.
Are ISAs worth it?
It depends!
If it's possible that you'll need to pay tax on the money your savings make, putting your money into an ISA could bring your tax bill down.
With a cash ISA your returns are guaranteed because you'll get a set interest rate. There's also no risk of you losing money as the amount in your ISA can't go down (except when you withdraw money). However, if that interest rate is lower than inflation, you might find you can afford less with the money in your ISA when you come to withdraw it.
Stocks and shares ISAs have potential to make more money than cash ISAs. Your money is invested in the stock market so there are no guarantees of how much you'll make (or that you'll make any money at all) but there's no limit to how much your savings can grow. In fact, in every 5-year period between 2000 and 2021, stocks and shares have out-grown interest rates*.
*Source: Barclays GILT study 2023.
Open a OneFamily Stocks and Shares ISA
Simply choose one of our three climate-focused funds to start investing in our Stocks and Shares ISA.
As the name suggests, our Stocks and Shares ISA invests in stocks and shares. The value is therefore likely to go up and down over time.
This is normal for this type on investment, but it means there is a risk you could get back less than you put in if you withdraw at a time when the value is lower.
