Individual Savings Accounts – known widely as ISAs – offer investors a tax-efficient way to grow their wealth effectively in the UK. You can contribute up to £20,000 each year into your ISAs, as of the current 2025/2026 tax year.
With various types of ISAs available, you can strategically invest your savings in different accounts that cater to different financial goals and circumstances. However, before you begin your ISA process – such as choosing to transfer your ISA to Netwealth, for example – it’s good to know more about how these accounts work.
To help you understand this better, we’ve put together an overview of the main ISA types and how they can benefit your financial planning process.
Cash ISAs
The most straightforward type of ISA you can invest in is a cash ISA. These are savings accounts that allow you to contribute money each year and grow your account with interest without paying tax on it.
These accounts are ideal for growing your savings over time with lower-risk investments, since your money sits in the account without being put into different assets. While they offer security, the returns are generally lower compared to other ISA types, especially in a low-interest-rate environment.
Stocks and Shares ISAs
Stocks and shares ISAs enable you to use the savings in your account to invest in a range of assets, including securities such as stocks, bonds, funds, and more.
The key advantage of this ISA type is that any income or capital gains earned from the investments are sheltered from income and capital gains tax (CGT).
This type of ISA is suitable for long-term investors who want to build their wealth towards their future goals with a range of investments with higher risk than cash ISAs, but more potential for higher returns.
Innovative Finance ISAs
Innovative Finance ISAs allow you to invest in peer-to-peer lending platforms and other alternative finance arrangements. This is where you invest money in a platform that is loaned to your chosen borrowers, who then pay the loan back with interest that you benefit from.
The interest earned is tax-free, but these investments carry much higher risks, including the potential for borrower default. They’re best suited for investors who understand the risks and are seeking higher returns with a strategic approach.
Lifetime ISAs
Lifetime ISAs (LISAs) are specific account types designed to help you save for your first home purchase or for retirement.
You can contribute up to £4,000 annually in these accounts, and the government adds a 25% bonus on your contributions. So, if you contribute the full amount, you can receive £1,000 from the government.
Funds can be withdrawn tax-free when used for purchasing a first home – which meets certain criteria – or after reaching the age of 60. Withdrawals for other purposes may incur certain penalties.
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ISAs are a highly beneficial tool for building and protecting your wealth over time. By understanding the different types of accounts and how they fit into your financial plan, you can make more informed decisions that support your long-term objectives.
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Please note, the value of your investments can go down as well as up.