ISAs explained

What is the difference between a cash ISA and an investment ISA?

An ISA is an Individual Savings Account. But it is more than that – you can shelter income, dividends and capital gains tax from saving / investing for life.

The government wants the public to look after themselves financially and currently allows an adult to invest up to £20,000 per financial year (starting 6th April each year) in total into a range of ISAs. For anyone under the age of 18, the limit is £9,000.

The best way of opening a stocks and shares ISA is by using a website often called a platform.

If you wish to merge your ISAs, choose a platform that is flexible. Some platforms allow you to take money out for emergencies but also to put it back in within the financial year without losing your allowance. Typically, you can take cash out within 2 weeks and there should not be any additional charges.

There are a number of ISAs each with varying features. The main ones are:

• The cash ISA which can only save in cash. The best rates however tend to be locked up for 12 months.

• The stocks and shares ISA which can hold cash but also fixed income and equities. Fixed income means bonds, and a bond fund is the usual way to hold them. You can blend them together using AI to build a strategic portfolio from funds to diversify risk.

Other types of ISAs

• Junior ISA – for someone under 18 years of age.

• Help to Buy ISA – closed to new investors.

• Lifetime ISA – designed to help people aged 18–40 save for their first home or retirement.

• Innovative Finance ISA – these allow you to invest into peer-to-peer loans.

There are rumours that these are being reviewed.