There are five main types of ISA in the UK, and they all let your money grow free of income tax and Capital Gains Tax. However, the right one depends on whether you’re saving for an emergency, a house, retirement or your kids. Here’s a simple guide to every type of ISA, what you can pay in and the big rule changes coming in April 2027.
What Is an ISA? Types of ISA Explained
An ISA, or Individual Savings Account, is a tax free wrapper for your savings and investments. You can pay in up to £20,000 each tax year across all your ISAs, and you never pay tax on the interest, dividends or growth.
The tax year runs from 6 April to 5 April. Unfortunately, any allowance you don’t use by 5 April is lost, so it’s worth using as much as you can afford.
The 5 Types of ISA Compared
| ISA | Yearly limit | Best for | Risk |
|---|---|---|---|
| Cash ISA | £20,000 (falling to £12,000 for under 65s from April 2027) | Emergency fund and short term savings | Very low |
| Stocks and shares ISA | £20,000 | Long term investing, five years or more | Can go down as well as up |
| Lifetime ISA | £4,000 (counts towards the £20,000) | First home or retirement, ages 18 to 39 to open | Depends on cash or shares |
| Junior ISA | £9,000 per child | Saving for children | Depends on cash or shares |
| Innovative Finance ISA | £20,000 | Peer to peer lending | High, not covered by FSCS |
1. Cash ISA
A cash ISA works like a normal savings account, except the interest is tax free. In addition, you can choose easy access, notice accounts or fixed rates for one to five years.
Cash ISAs are great for your emergency fund and anything you’ll need within a few years. Also, your money is protected up to £120,000 per bank by the FSCS. If you’re building a safety net, our guide on how to build an emergency fund shows how much to aim for.
2. Stocks and Shares ISA
This is where you invest in funds, shares, investment trusts and bonds. On the other hand, over long periods it has historically grown much faster than cash, but the value can fall, so it suits money you won’t touch for at least five years.
In practice, for most people a low cost global index fund is the easiest place to start. Here’s how to start investing with £100.
Curious how a stocks and shares ISA full of income shares might perform? See what happened to £10,000 in 10 UK dividend shares over a year.
3. Lifetime ISA
You can open a Lifetime ISA between 18 and 39 and pay in up to £4,000 a year until you turn 50. On top of that, the government adds a 25% bonus, so that’s up to £1,000 free money every year.
You can use it to buy your first home costing £450,000 or less, or take the money out penalty free from age 60. However, withdraw it for anything else and you pay a 25% charge, which means you lose a bit of your own money too, not just the bonus.
The government plans to replace the Lifetime ISA with a new first time buyer ISA, expected during 2027. Meanwhile, if you already have one, you can keep paying in under the current rules for now.
4. Junior ISA
A Junior ISA lets parents and family save up to £9,000 a year for a child under 18. The money belongs to the child and they can take control of it at 16 and withdraw it at 18. Also, it comes in cash or stocks and shares versions.
In addition, Junior ISA allowances don’t eat into your own £20,000 limit, which makes them a brilliant way to give your kids a head start.
5. Innovative Finance ISA
An Innovative Finance ISA holds peer to peer loans and some crowdfunding investments. Returns can be higher, but if borrowers default you can lose money, and there’s no FSCS protection. In short, it’s the riskiest type of ISA and only makes sense for a small slice of your savings. Since April 2026, crypto exchange traded notes can also go in an Innovative Finance ISA rather than a stocks and shares ISA.
Changes to the Types of ISA From April 2027
From 6 April 2027 the cash ISA limit drops to £12,000 a year for anyone under 65. However, the overall limit stays at £20,000, so you can still put the remaining £8,000 into a stocks and shares ISA. If you’re 65 or over, you keep the full £20,000 cash allowance.
In addition, there will be new rules to stop people holding lots of cash inside a stocks and shares ISA and then moving it to cash. If you want to save the full £20,000 in cash, the 2026/27 tax year is your last chance. Check our guide to the ISA deadline.
More changes could follow. My guide to the Autumn Budget 2026 covers what’s confirmed and what’s still rumoured for ISA savers.
Want to see how the rules got here? Our ISA allowance history chart shows every yearly limit since ISAs launched in 1999.
Which Types of ISA Should You Choose?
Step 1: Sort Your Emergency Fund
First, keep three to six months of essential costs in an easy access cash ISA before you invest.
Step 2: Saving for a First Home?
Next, if you’re 18 to 39 and buying your first place, the Lifetime ISA bonus is hard to beat.
Step 3: Investing for the Long Term
Next, put money you won’t need for five years or more into a stocks and shares ISA. Our compound interest calculator shows how much it could grow.
Step 4: Think About Your Kids
Finally, once your own savings are on track, a Junior ISA is a great way to build a pot for them.
Related reading: Teaching Kids About Money.
Types of ISA FAQs
Can I Have More Than One Type of ISA?
Yes. In fact, you can pay into as many ISAs as you like in the same tax year, including more than one of the same type, as long as your total stays within £20,000.
Can I Move Money Between Types of ISA?
Yes, using an ISA transfer. However, always ask your new provider to do the transfer for you rather than withdrawing the money, or it loses its tax free status. From April 2027, under 65s won’t be able to move money from a stocks and shares ISA into a cash ISA.
New to investing? My investing for beginners UK guide explains how to get started inside a Stocks and Shares ISA.
How Much Do ISA Savers Usually Have?
The average ISA balance is £37,831 per holder. Then, see how you compare in our guide to the average ISA balance.
Content on IceburgWealth.com is for general information only and is not financial advice. I am not a regulated financial adviser, and tax rules and figures can change. Always do your own research and consider speaking to a qualified adviser before making any financial decision.
This article is part of our UK Investing Guide, where you will find every related article in one place.
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