Investment ISAs

Individual Savings Accounts, more commonly referred to as just ISAs, are a special type of retail investment that has a favourable tax status.

The Advantages of ISAs

Since their introduction to the UK back in 1999, ISAs have proved an incredibly popular investment. Undeniably, the most attractive thing about ISAs is that they are tax-free; this means that ISA holders will not have to pay any income tax or CGT (Capital Gains Tax) on their investment.

Another great thing about ISAs is that they are incredibly easy to set up and manage. While stocks and share ISAs do carry an element of risk, regular cash ISAs do not—this makes them ideal for those who want to start investing money for the future but do not have an understanding of the stock market.

Types of ISA

In general, ISAs can be broken down into two types: Cash ISAs and Stocks and Shares ISAs. Cash ISAs are the most common type of ISA and are readily available from most banks and building societies throughout the UK. While you do not get to choose how your money is invested, you can choose whether you would like to receive a fixed rate of interest or a variable rate.

On the other hand, Stocks and Shares ISAs allow you to choose from a range of investments and your reward will be determined by the performance of these investments. Though small, there is an element of risk coupled with Stocks and Shares ISAs. In general, this type of ISA is better suited for longer term investments (5 years +).

Things to Remember

  • The amount of money that you can pay into an ISA every year is capped. Currently, you can pay in up to £5,940. However, this is set to rise to £15,000 on 1st July 2014.
  • While it is possible to own a number of ISAs, you are only allowed to pay into ONE account each tax year. This makes it even more important that you do your research before investing.
  • If you opt for a Cash ISA, do think carefully about the pros and cons of fixed and variable interest rates. While fixed rates do often offer the most attractive rates, you are often asked to tie up your money for a longer period of time which could lead to opportunity loss in the future or incurring hefty penalties for withdrawing your money early.

Top ISA providers in the UK

  • Santander is one of the most popular providers of ISA in the UK. They offer both 2-year fixed and variable ISAs. In addition, if you hold one of their 123 accounts or are a select customer you are also eligible for a special 123 2-year Fixed ISA.
  • Barclays is often a popular choice for ISAs too. One of the most attractive aspects of Barclays ISA offerings is that they are incredibly flexible. Their cash variable ISA boasts instant access and customers can make three withdrawals from a Barclays 3-year fixed cash ISA.
  • Halifax is another favourite when it comes to ISAs. They offer both a selection of fixed and variable rate Cash ISAs. They have a particularly varied selection of fixed-term ISAs as they offer: 1 year, 18 month, 2 year, 3 year, 4 year and 5 year fixed ISAs. In addition, all Halifax ISA account holders qualify for the Halifax Savers Prize Draw.

Comparison of Top UK ISAs

Provider Best Variable ISA Rate Best Fixed ISA Rate
Santander 1.60% 2.30% 2-year fixed
Barclays 1.29% 1.8% 3-year fixed
Halifax 1.55% 2.4% 5-year fixed