In this ‘In depth’ series, we take a closer look at the major financial products and services that can help you reach your medium and long-term financial goals.

Here, we focus on Individual Savings Accounts (ISAs) and put their pros and cons under the spotlight.


In depth: What is an Individual Savings Account (ISA)?

Are you looking for a tax-efficient way to save money? Regardless of whether you’re saving for retirement, a new home or even just a holiday, you’ll always be able to save faster if you can reduce or eliminate taxes.

One of the most tax-efficient ways to save is through an Individual Savings Account (ISA). Individual Savings Accounts were made available to U.K. taxpayers in 1999. They replaced prior tax-advantaged accounts like Personal Equity Plans and Tax-Exempt Special Savings Accounts.

You can open an ISA with almost any major investment company or bank.

Tax Advantages of ISAs

The biggest benefit of saving in an ISA is its tax treatment. Once the money is invested within an ISA, it grows virtually tax-free. You don’t have to pay taxes on any interest or capital gains that you accumulate.  As with any other form of investment including pensions you are unable to reclaim the 10% tax credit on UK dividends.

Furthermore, you don’t have to pay taxes on the money when it’s withdrawn. You can withdraw money from the account at any time completely tax-free. Now, you may have penalties depending on what types of investments are held within the ISA, but you’ll never pay taxes on an ISA withdrawal.

What changed on 1st July 2014?

ISA Accounts used to be split between Cash ISAs and Stocks and Shares ISA.  You were limited to investing up to half of the annual subscription limit of £11,520 into Cash ISAs.  In contrast you were able to invest 100% into a Stock and Shares ISA the balance after the subscription into a Cash ISA.  This complication was removed and the limit increased to £15,000 when New ISAS or NISAs were introduced allowing people to decide how much they want to invest in cash or stocks and shares.

What are the differences between the different elements?


Cash as an asset is a relatively secure savings vehicle that’s good for short- to medium-term savings. It’s ideal for a near-term goal or when you can’t afford to take much risk, such as saving for a down payment on a home.

Whilst investing in cash, your money is kept in an account that may have FCSC protection. It earns interest tax-free while it’s in the account. You can pull money out of the account with no more than 15 days’ notice required.

Your interest rate in the account may depend on how the money is held. If it’s completely liquid, you may have a lower interest rate. However, it you commit to keeping the money in the account for a longer duration, such as for a year, you may get a higher interest rate. If you were to pull the money out before the time period was up, you may have to pay a penalty.

Stock and Shares

Stock and shares allows you to invest in a much wider variety of investments. You can put your money into anything that is classified as a qualifying investment, which includes cash, unit and investment trusts, publicly traded companies, and publicly traded bonds.

Most of the investments available in stock and shares frequently fluctuate in value. Because of that, these types of accounts are often best-suited for long-term savings goals like retirement. With a longer time horizon, you’ll be better able to withstand and recover from short-term dips in the market.

When investing in stocks and shares there may be fees applicable. There could be an account maintenance fee as well as trading fees related to the types of investments that you choose. Be sure to get a full breakdown of fees before putting money into stock and shares.

Talk to your financial advisor about ISAs and whether one could be right for you.

Although the common perception is that ISAs are somewhat complicated, they are simply tax-free or tax-efficient accounts for your savings or investments.


We will be looking into other financial products and services in future ‘In Depth’ articles, striving to deliver jargon-free insight and analysis of the various financial solutions that typically help our clients reach and often exceed their objectives.

As an expat expert, I am on hand to help with all of the above and more.

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Mike Coady is an award-winning financial expert and a well-known leader in the financial industry.

Having taken two of his previous firms to Chartered Status in the UK and also achieved the prestigious National IFA of the Year Award – Highly Commended.

Mike is qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), and a Fellow of the Institute of Directors (FIoD).

Blog published by Mike Coady