The 4 Types of ISA Explained: Cash, Stocks & Shares, Lifetime, and IFISA

An ISA (Individual Savings Account) is a tax-efficient wrapper for your savings or investments. Any interest, dividends, or capital gains earned inside an ISA are completely free from UK income tax and capital gains tax.

Every UK resident aged 18 or over gets a £20,000 annual ISA allowance. You can split this across the four types of ISA however you like - but the total can’t exceed £20,000 in a single tax year (6 April to 5 April).

Here’s how the four types compare.

At a Glance

	Cash ISA	Stocks & Shares ISA	Lifetime ISA	Innovative Finance ISA
What it holds	Cash savings	Investments (funds, shares, bonds)	Cash or investments	Peer-to-peer loans
Annual limit	£20,000*	£20,000	£4,000 (counts towards £20,000)	£20,000
Minimum age	18	18	18	18
Maximum age	No limit	No limit	39 (to open), contributions until 50	No limit
Access	Instant or fixed-term	Anytime (may take days to sell)	25% penalty on unauthorised withdrawals	Locked until loans mature
Risk level	Very low	Medium to high	Depends on what you hold	High
FSCS protection	Up to £85,000	Up to £85,000	Up to £85,000	Not FSCS protected

*From April 2027, the Cash ISA limit will be cut to £12,000 for under-65s.

Cash ISA

A Cash ISA works like a standard savings account, but the interest you earn is tax-free. You won’t pay income tax on it, regardless of your tax band.

How it works:

• You deposit cash, and it earns interest at a fixed or variable rate
• You can choose between easy-access accounts (withdraw anytime) and fixed-term accounts (higher rates, but your money is locked)
• Most banks and building societies offer Cash ISAs

Key details:

• Your capital is not at risk - Cash ISAs hold cash deposits, not investments
• If you already use your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate), a Cash ISA provides additional tax-free interest on top

Stocks & Shares ISA

A Stocks & Shares ISA lets you invest in the stock market - funds, individual shares, bonds, and other assets - with no tax on gains or dividends.

How it works:

• You open an account with an investment platform (Hargreaves Lansdown, Vanguard, Trading 212, AJ Bell, HSBC, etc.)
• You choose your investments - options include index funds, individual shares, bonds, and ready-made portfolios
• Any capital gains, dividends, or interest earned inside the ISA are tax-free
• You can withdraw at any time, though selling investments may take a few days to settle

Key details:

• Your capital is at risk - investments can fall as well as rise
• Platform fees and fund charges apply (typically 0.1%–0.5% per year for index funds)
• Returns are not guaranteed and depend on market performance

Lifetime ISA (LISA)

The Lifetime ISA gives you a 25% government bonus on contributions - up to £1,000 free per year - but it’s restricted to two purposes: buying your first home or retirement after age 60.

How it works:

• You can contribute up to £4,000 per year (this counts towards your £20,000 overall ISA allowance)
• The government adds a 25% bonus on top - contribute £4,000 and you’ll receive £1,000 in bonus, for a total of £5,000
• You can hold cash or investments inside a LISA, depending on the provider
• Bonuses are paid monthly, usually within 4–6 weeks of your contribution

Eligibility:

• You must be aged 18–39 to open one (you can contribute until you turn 50)
• To use the bonus for a home purchase, the property must cost £450,000 or less and be your first home

Key details:

• If you withdraw for any reason other than buying your first home or turning 60, you’ll pay a 25% withdrawal penalty. This doesn’t just remove the bonus - it takes a slice of your own contributions too. Put in £4,000, get £1,000 bonus (£5,000 total), withdraw early and you get back £3,750
• The £450,000 property price cap hasn’t changed since the LISA launched in 2017
• The LISA bonus doesn’t count towards your annual ISA allowance - but your contributions do

Innovative Finance ISA (IFISA)

The Innovative Finance ISA holds peer-to-peer loans - you lend money directly to borrowers (individuals or businesses) through a platform, and earn interest tax-free.

How it works:

• You sign up with a peer-to-peer lending platform that offers an IFISA wrapper
• Your money is lent to borrowers, and you earn interest on the repayments
• Interest rates are typically higher than Cash ISAs - often 4–8%
• Your money is locked until the loans are repaid (or you may be able to sell on a secondary market)

Key details:

• Not covered by FSCS - if the platform fails or borrowers default, you could lose money
• Liquidity is limited - you may not be able to access your money quickly
• The peer-to-peer lending market is smaller and less regulated than traditional banking
• Fewer providers offer IFISAs compared to other ISA types

Splitting Your £20,000 Allowance

You can split your £20,000 annual allowance across multiple ISA types in the same tax year. Since April 2024, you can also open more than one ISA of the same type per year - though your total contributions across all ISAs still can’t exceed £20,000.

How you split your allowance depends on your individual circumstances.

How Lunar Helps

Lunar connects all your accounts - Cash ISAs, Stocks & Shares ISAs, LISAs, pensions, and general accounts - into one dashboard. You can see your total ISA contributions for the year, track how your allowance is split across providers, and make sure you’re using your full £20,000 before the tax year ends.

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Sources

• Individual Savings Accounts (ISAs) - GOV.UK
• Lifetime ISA - GOV.UK Join the waitlist to track your ISA contributions with Lunar.