Your friendly guide to ISAs

This friendly guide to ISAs explains what ISAs are, the different kinds available and how they could help you and your family save and invest for the future.

What is an ISA ?

ISA stands for Individual Savings Account and is a tax-free way to save and invest for the future. There are 4 different types of ISA you can save or invest in, if you remain within your annual ISA allowance.

What is the ISA allowance?

Your ISA allowance for the current tax year is £20,000. This is the total you can save and invest across your ISAs throughout the tax year (which starts on 6th April each year).

Use it, don't lose it

You can’t carry any of your ISA allowance forward into the next tax year so, it really is true - if you haven’t used your full allowance by the 5th April, you will simply lose it.

Tax-free means your investment will grow free from tax, except for any tax we pay on your behalf (such as on dividends from UK shares). Tax treatment depends on individual circumstances and tax rules could change in the future.

What kind of ISAs are there?

Cash ISA

This one is all about saving. It's like a savings account where you can put your money away and watch it grow tax-free. The best part? The taxman can't touch any interest you earn.

Investment ISA

Also tax-free, an Investment ISA lets you invest your money in a range of assets. Things like funds, bonds, property, or stocks and shares. It's all about aiming to make the most of the potential power of the financial markets.

Innovative Finance ISA

An Innovative Finance ISA lets you lend to others through a peer-to-peer loan without paying tax on the interest you earn.

Lifetime ISA

Intended for a deposit for a first home or to save towards retirement with a government bonus added to your contribution until age 50.

Please note that Scottish Friendly doesn’t offer a Cash ISA, Innovative Finance ISA or Lifetime ISA. But we do offer a range of Investments ISAs. Keep in mind that stock market investments can go down as well as up, so you could get back less than you've paid in.

Scottish Friendly doesn't provide advice. The information provided should help you decide if an ISA is suitable for you. If you're not sure whether an ISA is suitable, you should contact an independent financial adviser for advice. Advisers may charge for providing such advice and should confirm any cost beforehand.

Unleash the power of your ISA allowance

Your ISA allowance for the current tax year is £20,000. Nice amount, right?

The tax year starts on the 6th of April each year, and it's the Government that sets the rules and limits for ISAs. They can change things, so staying in the loop is always a good idea.

To be eligible, you need to be at least 18 years old and a resident of the United Kingdom.

You can divide your ISA allowance in any way you like between Cash ISAs, Investment ISAs, and Innovative Finance ISAs. You can put up to £4,000 of the limit into a Lifetime ISA.

You can't carry any of your ISA allowance forward into the next tax year. So, if you haven't used it all up by the 5th of April, it goes. It really is a case of 'use it or lose it'.

Please remember that tax treatment depends on your individual circumstances and tax law may change in the future.

Differences between ISA types

The table below could help you quickly see the main differences and work out what suits your needs best.

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	Cash ISA	Investment ISA	Innovative Finance ISA	Lifetime ISA
How much can I save or invest each tax year?	£20,000 less any amount paid into other ISAs in the current tax year.	£20,000 less any amount paid into other ISAs in the current tax year.	£20,000 less any amount paid into other ISAs in the current tax year.	£4,000 or if you've paid in more than £16,000 into other ISAs, the remainder of your allowance.
Who can get one?	UK residents aged 18 and over.	UK residents aged 18 and over.	UK residents aged 18 and over.	UK residents aged 18 to 39.
Is there risk involved?	No. The value of your initial investment cannot decrease. However, depending on interest rates, the return on your money could struggle to outpace inflation.	Yes. While the long-term potential returns are greater, the value of your investment can go down as well as up and you could get back less than you've paid in.	Yes. While the rate of interest can be higher, there is no guarantee with the money you lend and you could get nothing back.	Yes and no. Lifetime ISAs can be in cash and stock & shares, so the risk depends on the type you choose.
Can I switch between ISAs?	You can transfer funds between Cash ISAs or from a Cash ISA into an Investment ISA, Innovative Finance ISA or Lifetime ISA.	You can transfer funds between Investment ISAs or from an Investment ISA into a Cash ISA, Innovative Finance ISA or Lifetime ISA.	You can transfer funds between Innovative Finance ISAs or from an Innovative Finance ISA into a Cash ISA, Investment ISA or Lifetime ISA.	You can transfer funds between Lifetime ISAs.

Investing for life

We want saving and investing to be accessible. From moving home to enjoying retirement. From your child's education to their first set of wheels. That’s why our Stocks & Shares ISAs and Junior ISAs are made for beginners and seasoned investors alike.

Check out our free friendly guides. They’re available online and downloadable.

Guide to Saving & Investing

Ready to take charge of your financial future? Our friendly guide is here to help make sense of saving & investing, no matter your goals in life.

View guide to Saving and Investing

Guide to Junior ISAs

Planning for your child's financial future? Our detailed guide to Junior ISAs could help walk you through some of the basics, benefits and how to get started on this long-term savings & investment journey.

View guide to Junior ISAs

Cash ISA vs Investment ISA

Stuck on the differences between an Investment ISA and a Cash ISA? We look at both sides of the coin to help you decide.

View comparisons guide

FAQs

Below you'll find answers to some questions about this investment option.

Choosing the right ISA comes down to how long you want to invest for and how much risk you're comfortable with.

Cash ISAs are bank accounts with tax-free interest, so could be perfect for shorter-term goals.

But if you're in it for the long haul, Investment ISAs offer the potential for better growth than a secure cash account, as they're linked to the stock market.

Just keep in mind that the value of investments can go down as well as up and you could get back less than you pay in.

Innovative Finance ISAs provide an interest rate based on lending criteria. As your capital is at risk, like stock market investments, they should also be viewed as a medium to long-term commitment.

Lifetime ISAs may be a good choice for saving or investing for your first home or retirement, with a generous 25% government bonus each year until age 50.

With a lifetime ISA, there are penalties for accessing your money early and you'll also lose the government bonus.

Accessing your money quickly can be pretty simple, depending on your ISA type. However, regardless of which ISA you choose there can be early exit penalties, required notice and charges applied for withdrawals. So it could be a good idea to check this carefully with your provider first.

Most Cash ISAs offer easy access, but some may require you to give notice before withdrawing funds.

Investment ISAs, on the other hand, are generally considered to be for the long game, with a recommended investment period of at least 5 years, but preferably 10 years.

Innovative Finance ISAs often have fixed-term lending periods and Lifetime ISAs come with specific conditions for penalty-free access, so check the details with your provider.

Discover our range of Investment ISAs

Ready to take that step into investing? Explore our range of Investment ISAs designed to suit your needs and goals.

Ready-made

An easy start option of investing in our ISA. Our carefully selected single fund options include:

A fund with a 10-year guarantee
A fund with ethical credentials

View ready-made ISAs

Do-it-yourself

You can pick from 10 funds that best suit your needs:

Choice of funds from low to high risk
Select just one, a mixture of all 10, or somewhere in between

View do-it-yourself ISAs

Keep in mind that stock market investments can go down as well as up, so you could get back less than you've paid in. Tax-free means the investment grows free from tax, with the exception of any tax we’ve already paid on your behalf (for example on dividends from UK shares). Tax treatment depends on individual circumstances and tax rules could change in the future.