Cash ISA
- A Cash ISA mainly works like a traditional savings account. You can open a Cash ISA if you’re a UK resident aged 16 or over, and it lets you save money and pays you interest. However, when you hold a Cash ISA, you don’t pay any tax on the interest you earn, while with a bank or building society’s savings account, you will pay Income Tax on earnings exceeding £1,000.
- Some people might consider paying into a Cash ISA to be a safer option as your savings aren’t subject to market ups and downs like they are with investing. However, it’s important to remember that if the rate of inflation outpaces the interest rate your Cash ISA earns, then the value of your savings could actually go down a little in real terms.
Stocks and Shares ISA (a.k.a. Investment ISA)
- With a Stocks and Shares ISA (also known as an investment ISA), your money is invested in assets like shares, bonds, property, and commodities and you don’t need to pay any tax on capital gains you make or income (interest and dividends) you earn. Put simply, you can keep everything you earn from your investment after all charges and fees are taken.
- Holding a Stocks and Shares ISA does present some risk since there’s no guaranteed return and the value of your investments could go down as well as up, but this could also give you an opportunity to earn higher returns than you can from your cash savings.
Lifetime ISA
- Paying into a Lifetime ISA allows you to save for your first-home and/or retirement and you don’t have to pay any tax on income you receive and capital gains.
- With this type of ISA, you’ll receive a 25% bonus on anything you’re putting in this is £1 for every £4 you put in, up to a maximum of £1,000 per year.
- This bonus is given every month, and you’ll then get interest or potential investment growth on it.
- The funds in your Lifetime ISA can only be withdrawn to purchase your first home or once you turn 60 (or in in certain circumstances where you are terminally ill)– if you withdraw funds before or for any other reason, you’ll be charged 25% of the amount you withdraw.
Junior ISA
- Junior ISAs (JISAs) allow you to give your little angels a head-start in life. Launched in 2011 by the government to replace Child Trust Funds, Junior ISAs enable you to save and invest for your children in a tax-efficient way. You can open a Junior ISA for your child at any time, as long as they’re under 18, live in the UK, and don’t already have a Child Trust Fund.
- Junior ISAs come with an annual Junior ISA allowance in other words, the amount you can put in your child’s Junior ISA each tax year is limited. In 2023/24 the JISA annual allowance is £9,000.
- When looking to open a Junior ISA, you can choose to pay into a Junior Cash ISA or a Junior Stocks & Shares ISA, or both, as long as you never go over your child’s annual allowance. And unlike an adult ISA where you can open a new one each tax year, your child can only have one Junior Cash ISA and one Junior Stocks and Shares ISA account throughout their childhood.
- One thing to keep in mind though is that any Junior ISA you open is owned by your child and no one else. Also, when your child turns 18, they can access their money and their Junior ISA becomes an adult ISA, giving them the opportunity to keep building their financial future in a tax-efficient way.
