What is an ISA?

ISAs are Individual Savings Accounts. They’re there simply to give you another tax-efficient way to save. They work because, unlike an ordinary savings account, you don’t pay tax on any growth in your investment.  So you get to keep more of your money.

It's worth noting that the favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation. The benefit of the tax treatment depends on individual circumstances.

What is an ISA for?

In a word, saving. You can use an ISA to save up for anything you want – whether it’s a new car, a big holiday, or simply to save for a rainy day. Many people also use ISAs as a way of saving for retirement.

Cash ISA

A Cash ISA works in the same way as any other savings account – the big difference is, you don’t pay tax on the interest you earn. Different ISA products have different rules. For example, some give you instant access to your cash, while others expect you to keep your money in the account for a fixed time. 

Stocks and shares ISA

This type of ISA invests your cash in stocks and shares and other investment types.  This means, compared to a cash ISA, your money has a greater opportunity to grow, especially if you’re investing for the longer term.

However, the value of this type of ISA is directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invest.

Junior ISA

As well as the two main types of ISAs for adults, there’s a third kind of ISA which is just for children. Junior ISAs are a great way to save for your child’s future, whether that’s university fees, a first car or getting onto the property ladder. You can start saving into a junior ISA as soon as a child is born and they can’t get hold of the money until they’re 18. It’s a great way to build a little nest egg for the future.

ISA allowance

ISAs are ‘tax-efficient’: That means you get to keep hold of more of your cash, rather than handing some back to the tax man. But remember there are limits to how much you can save into an ISA. For 2019/20, the government made this allowance £20,000. That means you’re free to invest up to this amount in a Cash ISA, a Stocks and shares ISA or a combination of both. There are some occasions where there are additional allowances available.

The allowance for children is lower – for a junior ISA you can save up to £4,368 a year for 2019/20. 

This information is based on our understanding of current, taxation law and HMRC practice, which may change.

Anything else I need to know? 

Setting up an ISA is simple. You can arrange your own, or you can ask an Independent Financial Adviser for some ISA advice. Alternatively contact Aegon Assist for guidance on setting up your ISA.  You can usually invest a lump sum, make regular payments, or do both.  

Saving for retirement

Most of us don’t want to work forever, so it’s important to plan and save for your retirement. ISAs are a great way to do this, but they’re not the only way. You could also invest in a personal pension, or have a combination of both – whatever works for you.