There are four types of Isa: adult stocks and shares Isas for those aged 18 or more, adult cash Isas for those aged 16 and over; junior stocks and shares Isas for those below the age of 18; and junior cash Isas for the same age group.
A broad range of investments can be held within a stocks and shares Isa wrapper, while cash Isas are usually deposit or similar savings accounts. Qualifying investments are the same for both adult and junior versions.
The two groups of qualifying Isa investments are:
For a Cash Isa:
• building society accounts
• bank deposit accounts
• authorised money market schemes (cash funds)
• certain National Savings products
• stakeholder cash products
• collective investment products that provide a cash-like return
• life assurance that provides a cash-like return.
For a stocks and shares Isa:
• equity shares listed on a recognised stock exchange
• many authorised unit trusts, investment trusts, open ended investment
• companies and other collective investment schemes
• building society permanent interest bearing shares (PIBS)
• corporate bonds, UK Government securities (gilts) and other European
• Government securities (with more than five years to run to maturity when purchased for the Isa)
On the downside, Peter Shipp, director of investment schemes for the Tax Incentivised Savings Association (Tisa), says Isa funds cannot be used as security for a loan.
He says: “It is also not a pension product but can be a useful complement or replacement to a pension for retirement income, particularly when it is desirable to draw down capital at a faster rate than permitted in a pension.”
At the moment, Brian Morris, head of savings policy at the Building Societies Association (BSA), says you can transfer funds from a cash Isa to stocks and shares Isa, but not the other way around.
He says: “A cash deposit is similar to any other ordinary savings account, apart from the tax free status.
“With a stocks and shares Isa, however, the money is invested in qualifying investments. Cash Isas are good for short to medium-term saving and for rainy day saving.
“Generally stocks and shares Isas are more suited to longer term savings. The suitability of individual Isa products will vary depending on each person’s attitude to risk.”