What is an ISA?
Individual Savings Accounts are an annual tax-free savings allowance enjoyed by every UK resident over 18 (for a Lexo ISA). From 6 April 2017, the ISA allowance is £20,000 per annum.
The main types of ISA today are cash ISAs, stocks and shares (aka investment) ISAs, Help to Buy ISAa, innovative finance ISAs, JISA (Junior ISAs) and for those aged 18 to 39 the Lifetime ISA (LISA).
Cash ISAs can be opened by anyone from the age of 16 and allow you to save without any income tax payable on the interest. There is no fee to open one. Cash ISAs have become less attractive since interest rates have been so low for so long, and since the Personal Savings Allowance was introduced.
Stocks and shares ISAs, also referred to as investment ISAs, available from the age of 18, invest your ISA funds into shares and/or bonds, either directly or via a collective fund. Lexo offers investors access to their portfolios via investment ISAs.
Innovative Finance ISAs have been available since April 2016 and allow you to invest in peer-to-peer lenders or invest in companies through crowdfunding websites. The account cuts out the banks — so you lend directly to a borrower for a better return. But they are riskier! And your money is not covered by the Financial Services Compensation Scheme if the borrower defaults or the provider collapses.
Help to Buy ISAs allow first time buyers to save up to £12,000 per year and get a 25 per cent bonus of £3,000 if you save the maximum. Applicants must be 16 or over and have never owned a home here or abroad.
Lifetime ISA (LISA) is a completely new savings account from April 2017. The LISA will allow investors aged 18 to 39 to save up to £4,000 a year and get a 25 per cent top-up from the government. That means £1 for every £4, up to a maximum of £1,000. Anything you put in will count towards your overall ISA allowance for 2017-18.
The money can be withdrawn at any time to buy a house worth up to £450,000, or you can leave it in until you are 60. Any money taken out earlier for reasons other than a house deposit will face charges of 5 per cent. You’ll also lose the government top-ups and interest or growth on them.
Junior ISAs replaced the old Child Trust Funds and allows parents or careers of children under 18 born on or after 3rd January 2011 or before September 2002 to open a Junior ISA. Child Trust Funds can now be transferred to a JISA.