All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Account types: ISAs, LISAs, JISAs and SIPPs explained
We explain individual savings accounts, lifetime ISAs, junior ISAs and self-invested personal pensions
When you open an investment platform, you’ll have options to choose between lots of different account types, all with their own acronyms and no obvious differentiation between them. Mostly, you’ll be able to access all of the same investments with all of the account types you’re offered, but there are some key differences that you’ll want to know before choosing which one you want to open.
What's the difference between these account types?
The main difference between them is tax — your choice of account determines whether you’re taxed, any allowances you’ll have, whether you’ll get a top up from the government, how much that top up could be and when you’ll be able to see your money again. We’ve explained the key information for each account type below.
Investment tax and allowances
Everyone has investing and savings allowances that reduces or diminishes the amount of tax you’ll need to pay on either your deposits or your profits. Here are some of the key ones.
You don’t have to have specific account types to receive the following allowances:
- Capital gains tax allowance. This is the amount of profit you can earn in a tax year without having to pay tax on it. The allowance is £6,000, so any profits you earn over £6,000 will be taxable.
- Dividend allowance. This is the amount that you can receive in dividends in each year without paying any tax. You get £1,000 in each tax year.
The following allowances are related to specific account types, which we explain below.
- ISA allowance. This is the total amount that you can pay into your combined ISAs in each tax year. You get £20,000 in each tax year. If you stay within your allowance, this would mean you wouldn’t need to pay capital gains tax or dividend tax. LISA allowance. This is the amount you can pay into a lifetime ISA in each tax year to receive a government top-up on. You can pay £4,000 into your LISA each year.
- Pension annual allowance. This is the amount that you can contribute to your pension in each tax year. This is 100% of your annual income up to £60,000 each year. You’ll receive a top up into your account from tax relief.
- Pension lifetime allowance. This is the amount that you can pay into your pension in your lifetime without having to pay tax. The lifetime allowance is £1,073,100.
All of these allowances are correct in the 2023/2024 tax year.
An individual savings account (ISA) lets you save or invest up to £20,000 without having to pay any tax on your profits. There are a few different types of ISA, including stocks and shares, cash and lifetime.
The stocks and shares ISA lets you invest your savings. When comparing investment accounts with a provider, you’ll likely have a choice between a general investment account and an ISA. The difference between them is that the ISA has a tax-free allowance and the general investment account does not. This means that if you’re opening your first investment account, it could be wise to choose an ISA.
A cash ISA is a type of savings account, usually with a fixed interest rate. You’ll be able to pay in up to your ISA allowance (£20,000) in each tax year but instead of investing in stocks and shares, you’ll receive interest on your savings.
A lifetime ISA (LISA) is a type of ISA that gives you a government top up to go towards your first home or retirement. We explain this in more detail below.
We have a whole guide on ISAs if you’d like to learn more about the different types.
You can have a lifetime stocks and shares ISA or a lifetime cash ISA. As with ISAs, a stocks and shares LISA lets you invest your savings, while a cash LISA is simply a type of savings account.
With a lifetime ISA, you can save for either your first home or retirement. Every tax year, you can deposit up to £4,000 and receive up to £1,000 (25%) from the government. You can open a LISA if you’re between 18 and 40 and you can pay into a LISA and earn the bonus until you are 50.
You can’t withdraw your funds without incurring a fee unless you are using it to purchase a house or you’ve turned 60. You’re also allowed to withdraw if you are terminally ill with less than 12 months to live.
We have a whole guide on lifetime ISAs if you want more information.
A junior ISA is an ISA for the little ones. Like with LISAs, you can get both a stocks and shares JISA and a cash JISA.
The child’s parent can open their child a JISA and anyone can pay into it. The money that’s paid in will be locked away until the child turns 18, when they’ll be able to withdraw from it.
Your child has a JISA allowance of 9k, so any money paid into their ISA in each year cannot exceed this amount.
If you think you’d like to know more about JISAs and see what’s on offer, we have a dedicated guide.
The innovative finance ISA is slightly different to its cousins as it’s defined by the types of investments it holds. You can use your ISA allowance to invest in an innovative finance ISA, so you can put up to £20,000 into it in each tax year without paying any tax on your profits, although this allowance is inclusive of anything you hold in a cash or stocks and shares ISA as well.
Innovative finance ISAs invest in peer-to-peer loans, which is where investors are matched up with borrowers. As the investor, you’d be lending money to those who want to borrow and you’d receive interest for doing so.
Peer-to-peer platforms aren’t protected by the Financial Services Compensation Scheme (FSCS) and returns are not guaranteed.
Private pensions and SIPPs
Private pensions and self-invested private pensions are accounts that you can use to save up for your retirement. These let you save up to 100% of your annual income (up to £60,000) in each tax year. There’s also a lifetime allowance of £1,073,100.
You’ll get tax relief on your payments into a private pension, which means you’ll get back tax paid on the income — if you’re a standard rate taxpayer your pension provider claims the tax back automatically and adds it to your pot, known as relief at source. Higher rate taxpayers need to claim the tax relief.
You can’t start withdrawing from your private pension until you turn 55.
We have a detailed guide on pensions if you’d like to learn more.
ISA vs SIPP vs LISA
|Allowance||£20,000 per tax year||100% of earnings up to £60,000 / tax year.||£4,000 per tax year|
|Tax relief||Free from capital gains tax||Tax relief at source||25% top up from the government|
|Withdrawal rules||Withdraw whenever you like||Withdraw from 55 years.||Withdraw at purchase of first home or age 60.|
|Tax on withdrawals||No||Yes||No|
|What it holds||Investments or cash||Investments or cash||Investments or cash|
Bottom line: Which account type should I choose?
The account you’ll need to choose will depend on what you’re saving for. Typically, if you’ve not saved or invested much before, you’d probably want an ISA — check that you’ve definitely not paid into any ISAs in the current tax year before you get started. If you’re buying a house, you might want to consider the LISA, but ensure that you’ll be buying a home within its guidelines first. For retirement, a LISA or a pension would work.
More guides on Finder
How to buy Kyocera Corporation shares
Ever wondered how to buy shares in Kyocera? We explain how and compare a range of providers that can give you access to many brands, including Kyocera.
How to buy General Finance shares
Ever wondered how to buy shares in General Finance? We explain how and compare a range of providers that can give you access to many brands, including General Finance.
How to buy Baringsorate Investors shares
Ever wondered how to buy shares in Baringsorate Investors? We explain how and compare a range of providers that can give you access to many brands, including Baringsorate Investors.
How to buy 1st Source shares
Ever wondered how to buy shares in 1st Source? We explain how and compare a range of providers that can give you access to many brands, including 1st Source.
How to buy Eargo shares
Ever wondered how to buy shares in Eargo? We explain how and compare a range of providers that can give you access to many brands, including Eargo.
How to buy MediaAlpha shares
Ever wondered how to buy shares in MediaAlpha? We explain how and compare a range of providers that can give you access to many brands, including MediaAlpha.
How to buy Casper Sleep shares
Ever wondered how to buy shares in Casper Sleep? We explain how and compare a range of providers that can give you access to many brands, including Casper Sleep.
How to buy X Financial shares
Ever wondered how to buy shares in X Financial? We explain how and compare a range of providers that can give you access to many brands, including X Financial.
How to buy Capital City Bank Group shares
Ever wondered how to buy shares in Capital City Bank Group? We explain how and compare a range of providers that can give you access to many brands, including Capital City Bank Group.
How to buy Genpact shares
Ever wondered how to buy shares in Genpact? We explain how and compare a range of providers that can give you access to many brands, including Genpact.