ISA Comparison of the Leading Seven Account Options

When planning for your retirement, you want to shop around and compare the benefits each type of savings account has to offer. Most people mistakenly believe that there is only one type of individual savings account, when in fact, there are several.

Our ISA comparison guide will break down the pros and cons for each type of ISA, the ISA rates, and what you can expect regarding taxes, saving allowances and much more.

Basic

The basic ISA is the most popular type. This ISA allows you to shelter cash savings, in addition to stock market investments from both capital gain and income tax. To open this type of ISA you must be at least sixteen years of age.

Several years ago, there were much stricter limits in place regarding the amount of funds in this type of ISA could be used for cash savings. Currently, the full amount can be used for cash.

Any gains made via stock market investments are free of capital gains tax, while all cash is free of income tax.  Because of the tax advantages this type of savings account offers, it’s usually most people’s first choice.

Junior

This savings account is marketed toward parents who want to put aside funds on their children’s behalf. This savings account also allows money to be put into investment funds and cash. However, the annual limit is much lower compared to a basic savings account. With a junior account, you will only be able to deposit a little over four thousand pounds annually. Of course, like a basic ISA, investment gains and savings interest will not be taxed. Once the child turns sixteen years old, the control of the money in the account will be passed to them. However, no funds can be withdrawn from the account until the child turns eighteen. When the beneficiary turns eighteen they can choose to convert the ISA to a basic account.

Inheritance

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The inheritance individual savings account is directed toward people whose spouse or partner had an ISA at the time of death. This savings account is available to anyone who has lost a civil partner or spouse. The value of the savings account at the time of death is added to the inheritance ISA allowance, which means they will inherit the investments or savings without tax penalties.

This type of savings account must be opened within a three year period after a death, however, this time frame can be extended in certain circumstances.

Help to Buy

The help to buy ISA was designed to help people take those first few steps toward property ownership. The savings account allows people to save up to two hundred pounds a month, tax-free. The government will add a twenty-five percent bonus each month. During the first month, the account holder will be able to deposit up to twelve hundred pounds. There is a three thousand pound limit on the government bonus. In order for the account holder to get this bonus amount, they would need to deposit twelve thousand pounds over a period of five years. In order to qualify for the government bonus, the account holder must use the funds in the account toward purchasing a property. The government will pay the bonus money on the completion of the purchase.

Innovative Finance

The government has acknowledged the growing interest in alternative investments and savings, including crowdfunding services and peer to peer loans by creating a new type of individual savings account. This account allows you to store funds from crowdfunding services and alternative savings and investments, free from income and capital gains taxes. The yearly limit is twenty thousand pounds, the same as a basic account. Crowdfunded investments usually involve taking stakes in newer, smaller companies, which can be potentially risky. Peer to peer lending involves directly lending money to people, however, this type of investment comes with plenty of risks if the borrower misses payments or defaults on payments.

 Flexible

A few years ago, strict rules were in place regarding withdrawals from basic savings accounts, meaning any money that was taken out could not be deposited again without affecting the annual allowance. These days, if you take money out of a flexible savings account you can put it back in during the same financial year without your allowance being taxed. This is useful if you need access to your cash savings from time to time.

To learn more about ISA flexibility, click here for our extensive guide on ISAs and how they work.

Lifetime

This type of ISA is marketed toward people under the age of forty. It will allow you to deposit up to four thousand pounds a year with the government adding a twenty-five percent bonus annually. This account is designed to help the account holder to save for retirement or for a deposit on a property. Anyone between the ages of eighteen and forty can open this type of account. The government bonus payments will continue until the account holder turns fifty. Many people make an ISA comparison between the lifetime option and the help to buy ISA, however, the bonus terms and requirements are very different.

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