How do I pick the right ISA for me?

Authored on
21 Feb 2024



ISA stands for Individual Savings Account. They help you save or invest free of tax, which means you keep all the income from investments or cash in your ISA plus any investment growth.

UK residents can pay up to £20,000 into their ISAs each tax year, across all their ISAs. It’s a generous allowance but doesn’t roll over, so once the 6 April comes round, it’ll be reset and you’ll lose what you haven’t used.

There are four main types:

  1. Cash ISA
  2. Stocks and shares ISA
  3. Innovative finance ISA
  4. Lifetime ISA    

And there’s also a Junior ISA for children.   

Read more about Junior accounts    

Ultimately, the right ISA for you will depend on your needs – starting with what you’re saving or investing for and how long you’ve got before you need to money.    

What’s your target?    

Are you saving for something specific like your first home, or looking to boost your cash savings for a rainy day? Or are you thinking long term and want to build an investment pot?    

Having a target in mind will help you pick an ISA with the right features for you. But for most people, the choice of ISA will boil down to when you might need to access it.     

When will you need the money?    

Right away – it's there if something goes wrong with my house, car or my job or a last-minute holiday deal comes up.

That’s where easy access cash ISAs come in. You’ll need to get your hands on your money fast and without any restrictions when you need it. If you think you’ll be dipping into the account little and often, make sure it doesn’t have restrictions on how many times you can take money out. Cash ISAs shelter any interest you get from income tax.    

Sometime in the next five years    

If your emergency pot is sorted and you’re saving for the short to medium term, you should still be thinking about cash ISAs, but you’ve got a few more options. If you’re happy locking the cash away for a year or two, you might find you get a higher interest rate in return. These accounts are known as fixed-rate or fixed term cash ISAs.    

If you’re saving for your first home in the UK, the cash version of a Lifetime ISA might be worth considering too. You can see more in the table below.    

I won’t need to use the ISA for five years or more     

You could consider a Stocks and shares ISA to invest your money. There’s plenty of research that shows that the best way to beat inflation (the rise in prices) over the long term is to get investing rather than leave money in cash. But that isn’t guaranteed, the value of investments can go down as well as up, and chances are the investment journey might be bumpy along the way.     

If your long-term goal is to get on the property ladder, there’s an investment version of the Lifetime ISA too.    

It’s for my retirement    

Plenty of people use investment ISAs to save for retirement, alongside pensions. Although you don’t get some of the perks of pensions (like tax relief on what you pay in), you can access your ISA pot tax-free at any time.    

For under 40s, the (investment) Lifetime ISA might also be worth a look. You get a 25% bonus on what you pay in, but you’ll need to wait to age 60 before taking money out if you want to avoid a large penalty. If you’re employed you shouldn’t opt out of your workplace pension to save into a Lifetime ISA instead – you’ll lose valuable employer pension contributions if you do this.

ISA comparison table 

Cash ISA

A tax-free way to boost your cash savings, including emergency funds.

Designed for short to medium term savings or money you don't want to invest.

No investment risk, but inflation could eat the value of your account in the long term.

Quick facts

  • Open age 16+
  • Can pay in up to £20,000 a year (includes payments to other ISAs)
  • Can be easy/instant access or fixed term and notice accounts with withdrawal restrictions
  • All interest tax-free
  • FSCS protection up to £85,000 if bank or building society fails (limits applied to all money you have with the same provider)

Top tip – Look at best buy comparisons to find the best rate for the levels of access you need.

Stocks and shares ISA

Designed for people who want to invest tax-free for the longer term and are comfortable with the risk of investing.

You can still access your money without restrictions when the time is right.

ISA providers like AJ Bell have investments designed for people newer to investing as well as research and tools for those who are more experienced.

Quick facts

  • Open age 18+
  • Can pay in up to £20,000 a year (includes payments to other ISAs) Wide range of investments, including funds, ETFs, individual company shares and bonds
  • Can also hold cash while deciding on investments
  • No income tax on dividends or interest
  • No tax on investment (capital) gains

Top tip – Research low-cost options (with the features you need) to make sure you are keeping as much of your investment returns as possible.

Lifetime ISA

The most recent addition to the tax-free ISA family and the only ISA to get you free money from the government in the form of bonus.

They're primarily designed to help first-time buyers get on the property ladder in the UK, or under 40s save for later life.

But that government bonus has some serious strings attached, meaning Lifetime ISAs won't be right for everyone.

Quick facts

  • Age 18-39 to open
  • Once open, age 18-49 to pay in
  • Pay in up to £4,000 a year, counts towards the £20,000 ISA allowance
  • Cash or investment options available
  • Government tops up by 25%, 1 for every 4 you pay in
  • 25% government penalty charge applies on withdrawals, unless you're buying your first qualifying home in the UK or you've reached age 60

Top tip – Read more about LISAs and the extra rules that apply.

*Before 6 April 2024, savers could open a Cash ISA at age 16.

AJ Bell and Dodl by AJ Bell offer Stocks and shares ISAs and (investment) Lifetime ISAs. If you’re comfortable with the risks of investing, you can get started with as little as £25 per month

The value of your investments can go down as well as up and you may get back less than you originally invested. You can’t subscribe to an AJ Bell ISA if you’ve subscribed to another stocks and shares ISA in this tax year. Any subscriptions paid to other types of ISAs will restrict your allowance.