Choosing the best ISA for your needs can be very challenging. There are many different ones out there so it’s easy to feel overwhelmed.One way to cut through the noise is to focus clearly on your own unique needs and goals.
Start by asking yourself:
Are you saving for:
- a specific target or deadline?
- an unexpected rainy day?
Do you want a way of saving that:
- safeguards your money but might not help it grow as much?
- risks losing some of it but might also grow its value more?
Do you want to save money:
- for the short term – five years or less?
- for the mid to long term – five years or more?
Have you opened up or paid into any other ISAs already this financial year?
- as of 6 April 2024 you can pay into more than one type of ISA each tax year. It's a good idea to think about how you might want to use your annual ISA allowance across them.
How much of your £20,000 annual ISA allowance have you already used up this year?
The answers will help you choose between different ISAs.
For example, if you want to save money for the short term, a cash ISA is probably a better choice than a stocks and shares one. Because you’re not investing your money there’s no risk of losing any of it if the markets do badly. And you can go for one that lets you pull cash out of it the same day.
If you’re saving for a longer term goal, you could get better returns with a stocks and shares ISA. As with any investment though, the value of any money you put in will go up and down. Growth isn’t guaranteed, so you may get back less than you put in. Another ISA option is the innovative finance ISA. While it’s set up differently to a stocks and shares ISA, it’s still an investment product so the same considerations apply. And finally, if you’re saving toward a new house, check out Lifetime ISAs – they’re specifically designed for first time home buyers, as well as to help you save for later life.
But most people with ISAs have a cash or stocks and shares one. We’re going to give you some tips about finding the best ones here. Our article ‘Cash ISAs vs stocks and shares ISAs’ will tell you more about them both and help you choose between them.
Finding the best ISA rate
Once you’ve understood your savings goals, you’re halfway to choosing the right ISA. And you don’t have to just go with one – you might end up with two or more different types. But whichever you choose, you’ll want to find ones with the highest rates or the lowest charges.
How you do that will depend on whether you’re going for a cash ISA or a stocks and shares ISA. And it’ll probably only end up being part of your decision process.
Finding the best cash ISA
If you’re going for a cash ISA, some good next steps are to:
- Confirm that you want to invest for five years or less. There’s no fixed term for cash ISAs, but they’re generally a better choice for shorter-term saving.
- Make sure that you can’t get a better interest rate or more tax relief with a standard savings account. That’ll depend on how much you’re saving and your personal income.
- Decide which of the four types of cash ISA is best for you. You can choose between:
- A fixed-rate cash ISA, which earns a set rate of interest for a fixed period. Once your money’s in your ISA it can be costly or even impossible to add any in or take any out.
- A notice cash ISA, which only lets you take money out after a fixed notice period (usually 30, 60 or 90 days).
- A regular cash ISA, where you have to pay in a fixed amount each month. You’ll need to be sure you can make that payment for the life of your ISA.
- An instant-access cash ISA, which let you take money out whenever you want. They can offer lower interest rates and restrict how you can take money out .
- A combined cash ISA, which brings together some or all of the above in one product. That lets you save cash in different ways while still only paying into one ISA.
- Find an ISA that offers a good interest rate. There are comparison websites that’ll help you with that. They work just like utility bill and car insurance comparison sites.
- Look for a trustworthy provider that you like dealing with. You could be starting a relationship that’ll last for years or even decades, so make sure they’re a good fit.
- Speak to a financial adviser if you’re not sure about the best choice to make. They’ll help you find the right provider and product.
Finding the best stocks and shares ISA
If you’re going for a stocks and shares ISA, some good next steps are to:
- Be sure you want to invest for five years or more. There’s no fixed term for this kind of ISA but they’re usually better suited to mid- to long-term saving.
- Confirm that you can afford to lose some money if you need to pull some or all of your investment ISA when the markets are doing badly and it’s lost value.
- Compare different stocks and shares ISAs, looking at factors like:
- any costs – they can make a big difference to the amount you get back. Providers can charge in different ways, including:
- a percentage of your investment amount
- a flat fee
- transaction charges
- a combination of all three.
- if you can change how your money’s invested, for example by switching it into a different fund. Be sure to understand how that works and again check for any costs.
- the type and range of investments that are available for you to choose from.
- any costs – they can make a big difference to the amount you get back. Providers can charge in different ways, including:
As with cash ISAs, comparison websites will help you see what’s out there. But if you’re new to investing, they might not give you all the help you’ll need. If you’re not sure about your choices, you should speak to a financial adviser. Our ’Investing for Beginners’ article might also be helpful.
If you’re looking for a simple choice, it could be worth checking out stocks and shares ISAs that let you put your money into an investment fund. You choose the type of fund, so you could go for one that invests in a particular type of company or offers a particular level of risk and potential return.
That’s how our own Stocks and Shares ISA works. You can open one today with £100 – or set up a direct debit for just £20 per month. We offerfive diversified fund solutions based on your risk appetite, and an extended fund range. To choose between them, you need to understand your own appetite for risk. That’s a very personal decision that only you can take. Our Understanding Risk page will help you with it.
What’s next?
Many of us spend more time researching which car to buy than which ISA to go for. But an ISA could be in your life for much longer than a new set of wheels. Hopefully this article’s helped set you on the road to finding the right one for you.
