Your ISA options explained

There are now even more ISAs to choose from, so where do you start?

Cash ISAs

You can save all or part of your annual ISA allowance into a Cash ISA.

These accounts are readily available from banks, building societies and credit unions and can take the form of an easy access account, notice account or a fixed-rate bond.

Traditionally providers launched attractive rates around the end of the tax year to attract savers looking to use up their annual ISA allowance at the last minute. And it was a similar story at the start of the new tax year as early-bird savers rushed for an ISA.

Sadly competition for savers' cash has waned over the last few years, and rates on both Cash ISAs and traditional savings accounts have been in the doldrums.

When looking into Cash ISAs, check whether an account allows transfers of previous years' allowances or just takes new subscriptions and how much you will need to open one.

Compare Cash ISAs

Stocks and shares ISAs

Alternatively you can invest all or part of your annual ISA allowance into a Stocks and Shares ISA.

With a Stocks and Shares ISA you can choose how to invest your money. Investments can be made in individual company shares, unit trusts, investment funds, government bonds and corporate bonds.

As well as shielding investments like corporate and government bonds from interest, there is also no capital gains to pay on investments in a Stocks and Shares ISA.

Currently you do have to pay at least 10% tax on dividend income, even if it's inside a Stocks and Shares ISA. However, from 6th April 2016 the first £5,000 of income from dividends will be tax free (inside or outside an ISA).

You should only really invest in a stocks and shares ISA if you are happy to take a risk with your savings as investments can go down as well as up in value. There may also be charges to consider for the platforms and funds you pick which will eat into your returns.

Compare stocks and shares ISAs at loveMONEY.com

Junior ISAs

The Junior ISA, or JISA, is a way for parents to save or invest for their children tax free.

JISAs replaced Child Trust Funds (CTFs) in November 2011. Thanks to a change in the law in April 2015 millions of children that got stuck with CTFs are now allowed to transfer the money into a JISA.

The JISA allowance for 2015/16 as well as 2016/17 is £4,080 and the money can be invested in a Cash ISA and/or a Stocks and Shares ISA. Any money invested belongs to your child.

Either or both types of JISAs can be opened for any child under 18. From the age of 16 your child can also hold an adult Cash ISA, which means they can benefit from both allowances for a couple of years before turning 18.

Currently the best rate on a Cash JISA is from Halifax which pays 4%, but you'll need to hold an adult ISA with the bank to qualify for the rate.

Innovative Finance ISAs

From April 2016 investors will be able to use an Innovative Finance (IF) ISA to get tax-free returns from the money they put into peer-to-peer loans made via platforms like Zopa, Funding Circle and RateSetter.

Peer-to-peer lending has become popular with savers looking for better returns on their cash, and are willing to take on some risk. It involves lending money to individuals or businesses looking for loans. As there is no middleman in the shape of banks, the rates tend to be better for both sides.

Investors will be able to spread their annual ISA allowance between the new IF ISA as well as a Cash ISA and a Stocks and Shares ISA.

Details on the new IF ISAs are scarce, as platforms race to get the proper authorisation before 6th April, but RateSetter has given an idea of what it plans to offer. The details are below.

As you can see the returns are much higher than what you can get in Cash ISAs at the moment. The rates are likely to move around a bit by April as they are based on demand, but once you sign up the rate will be locked. RateSetter estimates that the average existing peer-to-peer investor could save £376 a year in tax by moving to an IF ISA.

You should remember that investing in peer-to-peer has an element of risk, as borrowers can default on loans and investments aren't protected by the Financial Services Compensation scheme. However, major players like Zopa and RateSetter have provision funds in place to help pay out in the event of bad debt and you can limit risk by spreading your investment among multiple borrowers.

Help to Buy: ISAs

The Help to Buy: ISA was launched at the end of last year to help first-time buyers save a deposit for a home worth up to £450,000 in London or up to £250,000 in the rest of the country.

You can save up to £200 a month or £2,400 a year into a Help to Buy: ISA, which can be boosted by a Government bonus of 25% when you come to buy your first home.

The minimum bonus the Government will pay is £400, so you will need to save at least £1,600 before you buy a house in order to benefit. The maximum bonus you can get is capped at £3,000. So the most it is worth saving into a Help to Buy: ISA is £12,000.

The bonus is per individual not per household so you and your partner could effectively gain £6,000 from the Government to buy your first home together.

If you paid into a Cash ISA after 5th April 2015, to open a Help to Buy: ISA this tax year (i.e. before 6th April 2016), you will have to transfer your active Cash ISA to a Help to Buy: ISA. You can transfer up to £1,200 of your active Cash ISA balance into your Help to Buy: ISA. Anything more than this has to go into either a Stocks and Shares ISA or a non-ISA account.

Alternatively you can use a portfolio ISA to save into a Cash ISA and a Help to Buy: ISA at the same time. The standard Cash ISA and Help to Buy: ISA allowance limits will apply.

Help to Buy: ISAs will be available until 30th November 2019 and you must claim your bonus by 1st December 2030.

Lifetime ISAs

The Lifetime ISA will be available from April 2017.

It will enable anyone aged between 18 and 40 to save up to £4,000 a year (which will form part of your total ISA allowance for the year) and receive a Government bonus of 25% each year until you reach 50.

This means you could potentially get a £1,000 boost on your savings each year.

The savings and the bonus can be used towards a deposit on your first home worth up to £450,000 (which is why the Help to Buy: ISA is being phased out). The money can also be used for retirement as the whole pot can be withdrawn tax free after your 60th birthday.

Withdrawals for purposes other than buying a home or retirement will incur a charge and you will lose the bonus and interest accrued on it.

Those with a Help to Buy: ISA will be able to transfer what they have saved into the Lifetime ISA in 2017 or continue to save into both separately. However, you will only be able to use the bonus from one scheme to buy a house. The bonus that is not used, and any interest accrued on it, will be returned to the Government.

Earn up to 5% on your money: compare high-interest current accounts