ISA Guide - everything you need to know

What is an ISA?

ISA stands for ‘Individual Savings Account’, which are savings or investment accounts with annual allowances that you don’t pay tax on.

Every tax year (6th April - 5th April the following year), the government sets an ISA allowance and that limits the amount you can save tax-free in an ISA each year.

How do I choose an ISA? 

The type of ISA you choose will depend on what's best for you and your general circumstances. Think about what you need to save money for - are you saving to buy a house, or your retirement? If it’s either of these, a Lifetime ISA might be best. Or will your ISA be used for general savings? If so, our Cash ISA Saver could be the most suitable product.

You also need to think about when you need your money - the longer you leave it in your ISA, the better your chance of high returns will be. Tax treatment depends on your individual circumstances and may change.

Stocks and Shares ISA or Innovative Finance ISAs invest your money, these may provide larger returns than other ISA schemes however as with all investments, your money is at risk, and you may get back less than you invest.

Is my money safe in an ISA?

• Cash ISAs and Lifetime ISAs: Yes - your money is protected under FSCS
• Stocks & shares ISAs and Innovative finance ISAs: Returns are not guaranteed
• Tax treatment of your investment depends on your personal circumstances and may change in the future

If you have a Cash ISA or Lifetime ISA, it’s protected up to £85,000 by the Financial Services Compensation Scheme (FSCS)

How much can I save every year in an ISA?

For the tax year 2024/2025, the maximum you can save in an ISA is £20,000 (this is your ISA allowance) and your yearly tax-free allowance doesn’t roll over into the following tax year. 

If you have a Lifetime ISA, the maximum you can save each year is £4,000 and the maximum you can save into a Junior ISA every year is £9,000. Money put into a Junior ISA won’t impact your £20,000 allowance, as it’s for your child.

If you accidentally exceed your ISA allowance (on one or across several ISAs), you won't get any tax relief on the excess payments you've made. If this happens, HMRC will contact you at the end of the tax year to let you know the next steps.

How many ISAs can I have?

Thanks to rules introduced on 6 April 2024, you can now open and pay into ISAs with multiple providers in the same tax year. However, you still have the same ISA allowance, so you’ll need to make sure that your total yearly ISA savings stay within the annual ISA allowance.

Can I open an ISA? 

To open an ISA with us you must be:

• Cash ISA: 18 or over, UK resident
  
• Your money is at risk and you may get back less than you invest
  
• A parent or guardian can open a Junior ISA (JISA) for a child under 18

You can’t hold an ISA with or on behalf of another adult - so if you and your partner are saving to buy a house, you can each open a cash ISA that is tax free.
 

How old do I need to be to open an ISA?

From 6 April 2024, the age you need to be to open an ISA increased from 16 to 18 years old. That means you now need to be 18 or over to an open an ISA with TSB.

Under 18 and opened an ISA before 6 April 2024? You’ll be able to continue saving into your ISA as normal. You can also open additional ISAs or mature and renew a Cash ISA Saver with TSB.

If you’re under 18 and an existing TSB customer without an ISA, you can open a Junior ISA that will convert into an adult ISA when you turn 18.

What are the different types of ISA?

There are five different types of ISA:

• Cash ISAs
• Stocks and Shares ISAs
  
• Innovative Finance ISAs
• Lifetime ISAs
• Junior Cash ISAs

Cash ISAs

What are Cash ISAs?

Cash ISAs are a tax-free way to save. They’re suitable for people who are just starting to save, or people who already have large savings and are currently using a standard savings account.

With TSB’s Cash ISA Saver your money is protected by FSCS up to £85,000 but if you’re shopping around you will want to check each banks’ offering.

If you’re using a standard savings account and you want to move your savings over to an ISA, you may have to pay tax on the interest if you go over your Personal Savings Allowance. The Personal Savings Allowance is currently £1,000 for basic-rate taxpayers, and £500 for higher-rate taxpayers. Additional rate taxpayers don’t get a tax-free allowance. Tax treatment depends on your individual circumstances and may change.

The benefits our Cash ISAs: 

• Easy to open with no set-up fees
• Interest earned doesn’t count towards your Personal Savings Allowance, depending on your circumstances
• Savings up to £85,000 per person are protected under the Financial Services Compensation Scheme

What types of cash ISAs are there?

• Easy-access Cash ISA: You can withdraw your savings whenever you need to with no penalty. These ISAs are ideal if you need money quickly for things like car or home repairs
• Notice Cash ISAs: You’ll need to give a few days’ notice to withdraw your money - these ISAs work best if you don’t need immediate access to your savings
• Fixed Rate Cash ISAs: These ISAs tend to offer higher interest rates but if you do withdraw cash, withdrawal charges may apply
• Help to Buy ISAs: These are no longer available. They were created to help first-time buyers afford to own their own property. The government topped up savings with a 25% bonus, up to £3,000
• Lifetime Cash ISA

Stocks and Shares ISAs

What are Stocks and Shares ISAs? 

Stocks and Shares ISAs (or investment ISAs) allow you to invest in individual companies. Like Cash ISAs, they’re a tax-free investment. They’re technically a risk-based investment, not a savings account, as you could lose money.

You may pay fees with this type of ISA, including platform charges, management charges, trading fees, and transfer out fees.

These products can work for market beginners, as well as more experienced investors. If you’re new to investing and you want to guarantee your savings, they might not be the right product for you.

Benefits of Stocks and Shares ISAs:

- You’re exempt from Capital Gains Tax.
- You don’t pay tax on share dividends, or any interest earned.

Innovative Finance ISAs

What are Innovative Finance ISAs?

Innovative Finance ISAs are essentially peer-to-peer lending - you earn tax-free interest by lending money to individuals or businesses. Like Stocks and Shares ISAs, these products come with limitations and risk, they are also not regulated and not protected by FSCS so your capital may be at risk.

Benefits of Innovative Finance ISAs:

• Lending through an IFISA means your interest isn’t taxed
• You can invest in local businesses which matter to you, and help your community

Some of the risks of Innovative Finance ISAs:

• You may lose your money if the people or companies you’ve lent to can’t repay it
• It can take a while for you to get your money back - IFISAs may not be suitable for you if you’ll need to access your money in a hurry

Liftime ISAs

What are lifetime ISAs?

Lifetime ISAs are savings schemes to help people saving for their first home or retirement. You can put in up to £4,000 each year, and the government will top it up with a 25% bonus, up to £1,000 per year.

People aged 18 - 39 can open a Lifetime ISA, and you must make your first payment before you’re 40. You can continue to pay in after you turn 40, but when you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% government bonus.

There are two different types of Lifetime ISAs - Cash Lifetime ISAs and Stocks & Shares Lifetime ISAs. You can use a combination of both products as long as the amount you’re saving doesn’t exceed £4k per tax year.  

You can withdraw your money from your Lifetime ISA if you’re:

• Buying your first home (the property must cost £450,000 or less and you must have a mortgage)
• You’re 60 or over
• You’re terminally ill, with less than 12 months to live

If you withdraw your cash early, you’ll forfeit the 25% government bonus, which will be reclaimed as a 25% withdrawal charge.

Some of the benefits of lifetime ISAs 

• The government provides a yearly 25% bonus on however much you save, up to £1,000 per year.
• You can hold Cash or Stocks and Shares Lifetime ISAs, or a combination of both
• If you’re buying a home with someone else and you’re both first time buyers, they can also open a Lifetime ISA and claim the government 25% bonus.

Can I get a Help to Buy ISA?

The Help to Buy ISA scheme has ended, but you can take a look at our ISA offerings which can be a great way to kick-start savings for a house deposit.

Junior ISAs

What are Junior ISAs?

Junior ISAs let you save, tax-free, on behalf of a child as long as you’re the parent/guardian.

You can save up to £9,000 a year, and the child you’re saving for can’t touch it until they turn 18 - but after that, the money is legally theirs.

What are the benefits of getting a Junior ISA? 

• If you get a Junior Cash ISA (JISA), their savings are protected (this is not the case with a Stocks & Shares JISA)
• The money you save in a Junior ISA doesn’t impact your own £20,000 ISA allowance

Did Junior ISAs replace Child Trust Funds?

Child Trust Funds were a long-term tax-free savings account for children born between September 2002 and January 2011 - the scheme closed in 2011. If the child you’re looking to save for was born after January 2011 you can open a Junior ISAs in their name if you’re a parent or guardian.

Can I move my ISA to a new provider?

Yes, you can switch your ISA provider at anytime but there are few things you may want to keep in mind:

• If you are thinking of switching ISA providers, speak to your new provider or bank and they’ll sort the process out to make sure you don’t lose any benefits.
• You can also bring together your ISAs from different providers or tax years into one new ISA.
• If you’re switching to TSB, get in touch with us so we can arrange the transfer, and make sure you don’t lose out on any tax-free interest. It can take up to 30 days to transfer, but we aim to do it in just seven.