ISA guide

What is an ISA?

ISA stands for Individual Savings Account and is a tax free* savings account.

Who can open an ISA?

To open a cash ISA you need to be a UK resident aged at least 16 years old and, for a Stocks and Shares ISA you need to be 18 or over. Different ISAs have different age requirements which we will detail throughout this guide. You can only open an account as an individual; hence the name and it can only be for you, not on behalf of anyone else.

What types of ISA are there?

There are a number of different types of ISA available.  Some of the most popular types of ISA are:

Cash ISA

A cash ISA is essentially the same as a normal savings account except the interest won’t count towards your Personal Savings Allowance. There are many types of cash ISA accounts, such as instant access, notice, or fixed rate. View the range of cash ISA accounts that we have available at the moment. To open a cash ISA you need to be at least 16 years old.

Junior ISA

A Junior ISA is a long-term tax-free savings account for children. You can open our Junior ISA with just £1. To open a Junior ISA the child must be under the age of 18 but if the child is 16 or 17 they can open the account themselves. From ages 0 to 16, a Junior ISA must be opened on the child's behalf by a 'registered contact', which must be someone who has parental responsibility for the child.  Find out more about these accounts with our Junior ISA Guide.

Lifetime ISA

The Lifetime ISA is an account that can be opened between the ages of 18 and 39 and is for first home or retirement savings where the Government will top up savings with a 25% bonus up to £1,000 a year. The maximum deposit each tax year is £4,000 and you can continue to save into this account until you are 50, still receiving the 25% bonus but you won’t be able to access the savings until you are 60 unless using for a first home purchase.

Help to Buy: ISA

The Help to Buy: ISA, which is a special kind of cash ISA will also give 25% bonus on top of savings but only to the maximum value of £3,000 which is transferred to you after you have completed on your house purchase. You can open a Help to Buy: ISA at age 16. You can save however much you would like in a Help to Buy: ISA but you must have at least £1,600 in the account to qualify for the Government bonus and the bonus is only paid on the first £12,000 of savings. Once opened, you can deposit £1,200 in the first month and only £200 a month thereafter.

ISA options for first time buyers

While both the Lifetime ISA and Help to Buy: ISA can help first time buyers get on the property ladder quicker the accounts have different features. You can compare Help to Buy: ISA and the Lifetime ISA to see which is best for your circumstances. It's worth noting that the Help to Buy: ISA will be discontinued in November 2019.

Stocks and Shares

There is also a Stocks and Shares ISA which we don’t offer here at The Nottingham which may be suitable if you can leave your money alone for at least five years. You can put your money into a range of investments, such as unit trusts, open-ended investment companies (similar to unit trusts) and investment trusts, as well as government and corporate bonds. The value of your investment can go up and down. You can open a Stocks and Shares ISA and a cash ISA in the same tax year. You need to be 18 to open a Stocks and Shares ISA.

If this is something you are interested in, it's worth talking to a financial adviser. If you are a qualifying** member of The Nottingham you can access our recommended independent financial planning partner, Wren Sterling for their advice with a fee-free initial meeting.

ISA Rules

How many ISAs can you have?

You can have more than one ISA but you can’t open multiples of the same type of ISA with different providers in the same tax year. If you have more than one ISA that you have opened in previous tax years you can split your £20,000 allowance between them as long as you don’t exceed your allowance. You can have more than £20,000 savings in your ISA accounts over the years but the tax-free allowance is £20,000 for the 2019-20 tax year.

What is an ISA allowance?

Each tax year, which runs from 6 April to the following 5 April, there is a limit on how much money you can put into an ISA, naturally called an ISA limit. This is called your ‘ISA allowance’. For the 2019/20 tax year, your cash ISA ‘ISA allowance’ is £20,000. This allowance also covers other ISAs. For example, if you used your Lifetime ISA limit in one cash year and deposited £4,000 into that account, you could still deposit £16,000 in the same tax year into a cash ISA under the allowance.

The Lifetime ISA yearly deposit limit for 2019/20 is £4,000.

The Help to Buy: ISA yearly deposit limit for 2019/20 is £3,400 in the first year and £2,400 in the years after that.

The Junior ISA yearly deposit limit for 2019/20 is £4,368.

Can I withdraw money from my ISA?

Depending on the terms of your ISA how often you can and whether you will be charged to withdraw. The amount of lost interest from your ISA will differ. For more specific ISAs, like the Lifetime ISA for example, you will be charged 25% if you withdraw for a reason other than buying your first home or retirement but this rule only applies to this particular product and it means you could get back less than you put into the account. Check the terms of your ISA to see if there are any rules or charges for making withdrawals as some ISAs will not permit any access at all.

Can I withdraw and put the money back later? 

It will depend upon the ISA provider as some but not all ISA providers offer flexible ISAs. If your ISA is ‘flexible’, you can take out cash then put it back in during the same tax year. So, for example if you put £15,000 into your cash ISA, then withdrew £5,000.  You would still be able to put a £10,000 into the account in that tax year (£5,000 of new money and £5,000 to replace withdrawn). 

However, if your provider does not offer a flexible ISA you will not be able to replace any money which is withdrawn.  So, for example, using the same example, if you put £15,000 into your cash ISA, then withdrew £5,000.  You would only be able to utilise the remaining £5,000 of your annual allowance for that tax year.

Can I switch my ISA from one provider to another? 

ISA rules state that you can transfer money that you have saved in previous tax years and from the current tax year into a new ISA without affecting its tax-free status. You can also switch your ISA from one provider to another, whenever you want. To make a transfer, you must not close one ISA to open another, as this will affect your tax-free status. The transfer has to be arranged directly between the two ISA providers and you must ask your new ISA provider to organise this for you. Your current ISA provider cannot prevent you transferring, but they may charge you or you could lose interest if you do switch. It’s worth noting:

  • You can now transfer from a stocks and shares ISA to a cash ISA, although some investments may not be transferable.
  • You must transfer all of the money in your current tax year ISA, you can't leave some in the old account. But, you can leave money from previous tax years in your original ISA.
  • You can, if you wish, also transfer some, or all, of the money you put into this ISA in previous years without affecting your current ISA allowance.

How long will it take to transfer my cash ISA?

The transfer of ISAs from one provider to another should be completed within 15 days (or up to 30 days for a transfer of a stocks and shares ISA to cash ISA).

View our examples

Example 1

You pay in £4,000 in July meaning that you have £16,000 left of your ISA allowance for the year.

In September, you withdraw £2,000, leaving a balance of £2,000. You still have £16,000 left of your allowance. 

In December, you decide to put a further £2,000 in your ISA which means that your ISA allowance is now £14,000. This is because you have already deposited £6,000 into your ISA. You will only be allowed to pay in another £14,000. Paying more than £14,000 would take you over your annual limit.

Example 2

You pay in £20,000 in July. In September, you withdraw £2,000.

Even though you now only have a balance of £18,000 in your current ISA, you are not allowed to reinvest the £2,000 into another ISA as you have already reached your ISA limit for this year but you can reinvest it into a non ISA savings account. 

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* Interest will be paid free of UK income tax annually.  The tax treatment of ISAs may change

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