ISA stands for Individual Savings Account and allows you to save whilst earning interest and is tax-free. You can save up to £20,000 in a tax year tax-free. Having an ISA helps people to save for things like a house deposit as this a great, money-efficient way to save large amounts.

Cash ISA

This is similar to your regular current accounts as you are paid interest on your balance in the account. This is a simple way to save tax-free in a secure account for your money.

Cash ISA’s have interest rates of 5% or more currently.

Those over 16 can set up a cash ISA.

Stocks and Shares ISA

You can save up to £20,000 tax-free each year and your money is invested into various stocks and shares. This could help your account grow however there is a chance the value can go down as well. You can either choose where you money is invested or the bank will randomly invest your money into different stocks.

Only once you are 18 can you set up a stock and shares ISA.

Lifetime ISA

These are used to help you pay for your first house or alternatively to save for retirement.

This can be in the form of a Cash ISA or a Stocks and Shares ISA where you can save up to £4000 a year tax-free. The government will then add a 25% bonus which has to be used to help you buy a house such as pay for a deposit or for a retirement fund only. If you use this account to pay for anything else then there will be a 25% penalty rather than a reward at the time of withdrawal.

Only those between 18-39 are eligible for a lifetime ISA.

Withdrawing from your ISA

Your ISA will have certain rules regarding when you can withdraw as this is an account specifically for saving.

If you have an instant access Cash ISA you will be able to withdraw money at any time without any changes to your tax-free balance as this account will be for short-term savings.

If you have a fixed rate Cash ISA this will lock the money for a certain length of time and usually the interest rate for these accounts will be higher.

Then, there is the flexible Cash ISA here you will be able to make a limited number of withdrawals without losing any benefits of the ISA.

For the Stocks and Shares ISA you will usually be able to withdraw money at any time as long as you have cash in the account. If you want to withdraw money and you have no cash then you will have to sell shares at the current market price meaning you be losing money.

Why should you have an ISA?

If you are saving for something in particular and can afford to have savings which are in effect untouchable then having an ISA will be very beneficial to you. The money in your ISA should be separate from your personal savings in order for your ISA to be saved for your first home or retirement fund and to reap all the benefits.

With an ISA you are saving more with less.