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What is an ISA?

Important information - please keep in mind that the value of investments can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. 

Getting to grips with ISAs

An ISA, or individual Savings Account, is a flexible, tax-efficient way to save. With four types available - Cash ISA, Stocks and Shares ISA, Innovative Finance ISA and Lifetime ISA - you need to decide which is the right one for you. The Cash ISA and Stocks and Shares ISA are probably the most well-known. Here we go into the basics as to what an ISA is, and what the main differences are, to help shape your thinking.

Transcript - What is an ISA?

What is an ISA?  An ISA, or Individual Savings Account, is a flexible tax-efficient account for your investments, which means there’s no UK income tax or capital gains tax payable on your investment gains.

There are four different types of ISAs. You need to decide which ISA is right for you. Let's cover off Lifetime and Innovative Finance ISAs first, as they're a little different to the other two.

You can only open a Lifetime ISA if you're aged between 18 and 40. Its aim is to help you buy your first home or to save for your retirement.

The government will add 25% up to a £1,000 a year. The Lifetime ISA carries a yearly allowance and you can pay into it until you're 50.

An Innovative Finance ISA allows you to receive the income from peer-to-peer loans and crowdfunding debentures held within them, tax free.

The other two types available are Cash ISAs and Stocks and Shares ISAs, which are probably the most well-known.

With a Cash ISA your money typically sits in a deposit account. It means it's low risk. Yet with low interest rates and the effect of inflation, the value of your money may still erode over time.

A Stocks and Shares ISA allows you to save your yearly allowance in a wide range of investments including funds, shares and bonds as well as cash. This means you can choose whether you want to hold cash or investments - or a mix of the two.

With a Stocks and Shares ISA, it's possible to choose investments with more growth potential. But remember, the value of stocks and shares can go down as well as up, so you may not get back what you invest. 

Which ISA you choose is up to you, but one thing you'll need to be aware of is your yearly ISA allowance.

As you're allowed to have more than one type of ISA, with more than one provider, it’s your responsibility to make sure you don't pay in more than the total yearly ISA allowance into these accounts.

So, if you're looking for a tax-efficient way of saving, an ISA is a great place to start. You just need to weigh up which suits your needs most.

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