Where should you invest your £20,000 ISA allowance?

12 min Read Published: 20 Mar 2024
Where should you invest your ISA allowance?
Where should you invest your ISA allowance?

In the UK, savers and investors have more than £740bn squirrelled away in adult ISAs. The attraction of the Individual Savings Account (ISA) is that it lets you earn investment returns or interest on your savings while shielding your gains from the taxman.

New ISA rules as of April 6, 2024, mean you can open and contribute to multiple ISAs of the same type meaning you're spoiled for choice when it comes to building your ISA investments. Read on to find out what your ISA allowance is and how to choose the right ISA for your investments.

What is the ISA allowance?

This tax year, the ISA allowance is £20,000, so this is how much you can put away without attracting capital gains tax on any capital growth, income on interest or dividends. You can spread your ISA allowance across multiple types of ISAs. So, for example, you could put £10,000 in a cash ISA and an additional £10,000 in a stocks and shares ISA. Or, if you don't want to split your allowance, you can invest the full amount in one type of ISA. 

There are some peculiarities to be aware of when it comes to the ISA allowance, however.

Some ISA types have lower allowances. For example, you can only put £4,000 in a Lifetime ISA (LISA). This £4,000 forms part of the overall £20,000 ISA allowance, so if you put in the maximum amount, your remaining allowance would still be £16,000.

One way to "add" an extra £9,000 to your ISA allowance is by opening a Junior ISA for your child. You would then be able to invest up to £9,000 per year tax free on their behalf. The catch is that the money can't be withdrawn before they turn 18 when the account becomes legally theirs. We talk about the different types of ISAs in more detail below.

When does the ISA allowance reset?

Your ISA allowance resets at the beginning of each tax year which is always April 6. This means that you'll need to use up your remaining ISA allowance by April 5 of the current tax year.

Your ISA allowance won't roll over. If you saved £5,000 in your ISA allowance this year, you won't be able to save up £35,000 next year. You'll still be limited to £20,000. It's a use it or lose it type of allowance.

With that in mind, you might be wondering where to invest your (remaining) ISA allowance before the deadline.

What are the different types of ISA?

Here’s a brief roundup of the different types, what they do, and how to pick one. 

Cash ISA

A savings account in a tax wrapper, a Cash ISA can be instant access or fixed term, where you lock your money away, usually for a year or more in exchange for a better rate. They’re suitable for people over the age of 18 who don’t want to take any risk with their money. Bear in mind that although rates are higher than they used to be before the base rate hikes, they're still not brilliant and might not always beat inflation running the risk of diminishing your pot over time.

Stocks & Shares ISA

Stocks & Shares ISAs are for people over the age of 18 who want to hold managed funds or individual shares in a tax-efficient way. They’re good for anyone who wants to invest for medium to long-term goals – ideally, you won’t need to access your money for five years at least. You can adjust the spread of investments you hold to match your appetite for risk.

Stocks & Shares ISAs can offer better potential rewards than holding cash on deposit, but as with any investment, capital is at risk and returns are not guaranteed. You will usually have to pay investment charges and platforms fees which could eat into your returns as well. As such, it's worth looking for providers that offer the service you want at lower fees.

Innovative Finance ISA

The Innovative Finance ISA (IFISA) allows you to invest in peer-to-peer lending, so you can lend to individuals and small businesses and keep your investment returns protected in a tax wrapper. The IFISA is more suitable for those with spare cash who are willing to take on a bit more risk with some of their ISA allowance (although you could put your whole £20,000 allowance in there if you wanted to), as there’s a chance not all of your loans will be repaid. Plus, your savings aren’t covered by the Financial Services Compensation Scheme in the event a provider goes bust.

Lifetime ISA

The Lifetime ISA (LISA) replaces the Help to Buy ISA, which was phased out on 30th November 2019. If you already have a Help to Buy ISA you can keep paying in, as long as you claim the bonus by 2030. The LISA can be either a Cash or Stocks & Shares ISA, and you can open one if you are aged between 18 and 39. It has two aims: to help first-time buyers save for a house deposit, and to encourage saving for retirement.

The LISA offers a government bonus of 25% on everything you save up to a maximum of £4,000 each tax year. You can only withdraw without penalty either to buy your first home or once you reach the age of 60. The LISA is great for people who want a leg up on to the property ladder, and is useful as a retirement savings or investment vehicle, but should not replace a pension for most people.

Junior ISA

A Junior ISA (JISA) is a long-term savings account parents or guardians can open on behalf of a child. Once they reach the age of 16, the named child can take control of the JISA, and the money becomes theirs to withdraw once they reach 18. They can be either Cash or Stocks & Shares, the latter is usually the best option as by definition, Junior ISAs have a long time horizon over which money can grow.

In the 2024/2025 tax year you can put up to £9,000 into a JISA. They replace the old Child Trust Funds – if you have one of these you can convert it into a Junior ISA.

What is a Flexible ISA?

A Flexible ISA isn't a "type" of ISA in and of itself, but some Cash ISAs, Stocks and Shares ISAs, and Innovative Finance ISAs are "flexible". In the context of ISAs, this term has a very specific meaning.

If your ISA is flexible, it means you can withdraw and pay back into the same ISA in the same tax year without the replacement cash counting towards your annual ISA allowance. This means that if you had £10,000 in a flexible Cash ISA, and then withdrew £5,000, and then added £5,000 a few months later, you'd still have £10,000 of your allowance remaining. The withdrawal and subsequent deposit to replace the withdrawal wouldn't count towards your allowance.

What is an Inheritance ISA?

Since 2015, spouses and civil partners have been able to inherit each other’s ISAs if one dies, while keeping the tax benefits. The surviving partner is given a one-off extra ISA allowance called the additional permitted subscription (APS) which covers the value of the deceased partner’s savings as well as their own. You can read more about this in our "What happens to my ISA when I die?" article.

How many ISAs are you allowed?

Recent ISA rule changes mean that, as of April 6, 2024, you can now technically have as many ISAs as you want. Previously, you could only open and contribute to one of each ISA type within a tax year. But as of April, you'll be able to open and subscribe to multiple ISAs of the same type. This means that you could, for instance, have two cash ISAs, or two Stocks and Shares ISAs. The exception to the rule is Lifetime ISAs where you're still limited to one, as well as Junior ISAs, where you can still only have one as well.

Where to invest your ISA allowance in 2024

Once you’ve decided which ISA would work for you given your financial goals, personal circumstances and life stage, you’ll need to choose the right product from the right provider. While not a definitive guide, this section should give you a few pointers on what to look for. The best buy tables can change frequently, so it's worth doing your own research before you decide. The rates we list below were correct at the time of writing. 

Which is the best Cash ISA?

Cash ISAs are gaining in popularity with a number of providers now offering interest rates in excess of 5%, following a number of rises in the UK base rate. As the base rate is projected to fall, you can currently get the best deals on easy access Cash ISAs, notice Cash ISAs, and shorter fixed rate Cash ISAs. Virgin Money, for example, currently offers a 1-year fixed rate Cash ISA at 5.25%. In comparison, the best 5-year fixed-rate Cash ISA on the market is currently UBL's. UBL offers a top rate of 4.16% if you lock your money away for 5 years. 

Before you opt for a Cash ISA, consider whether you actually need the tax efficiency offered by this type of account. The personal savings allowance gives you the first £1,000 of any interest earned tax-free (for basic rate taxpayers, for higher-rate taxpayers it’s £500), which means most people don’t pay tax on their savings interest anyway. Making use of your personal savings allowance first is a good way to make the most of your tax-free ISA allowance. For instance, you could put more money in a Stocks and Shares ISA if you've already put money in savings accounts outside the ISA context. 

Which is the best Stocks and Shares ISA?

If you want a Stocks and Shares ISA, the two key things to consider are pricing and choice. High fees and charges eat into your returns so, to be sure of getting the best performing Stocks & Shares ISA you can, you’ll want to find a competitive provider which offers what you want. For example, a platform such as Hargreaves Lansdown* is more expensive than several of its competitors but you get good customer service and quality investment research, so it really depends on what’s important to you.

Keep an eye on our best buy tables for Stocks & Shares ISA comparison. You’ll also need to consider the range of investments on offer – how big a choice of funds or shares do you need? Will you mainly hold managed funds, individual shares, or passive products like index trackers and ETFs? Think also about how you want to manage your ISA – do you want a digital-focused provider with a fully functional app and a cutting edge website, or do you prefer the cheapest, no-frills platform? The option that works for you will depend on the ISA route you choose – the full DIY option, part managed or fully managed. Let’s explore each of these in a bit more detail.

Full DIY ISA route

A full DIY approach entails you selecting your own investments and then monitoring and managing them yourself if you have the time and skill to do so. You’ll probably want a provider which gives you a wide selection of investments to choose from. Online brokers Hargreaves Lansdown* and Interactive Investor* (ii) are worth a look, they offer regular savings plans with low minimum investments, a wide choice of funds and recommended lists (HL’s Wealth 50 & ii’s Super 60) where the platforms have used economies of scale to haggle fund discounts.

The risks of this approach are that you won’t do a very good job of getting the right mix of assets, properly diversified, without paying over the odds. Picking and monitoring investments is a full-time job and even the best investment professionals make mistakes. If you’re an enthusiastic amateur with limited knowledge of asset allocation principles, you are more likely to get things wrong and it could prove costly. But if you don’t overcomplicate things, you could build yourself a simple yet effective portfolio without paying too much in fund fees and then leave it to run over the long term and you might find it does the job.

To help DIY investors find the best Stocks and Shares ISA funds Money to the Masses created 80-20 Investor. It is a DIY investment service that helps empower investors (including novices) to run their own money and choose the funds to invest in by providing fund shortlists.

Part-managed ISA route

A part-managed approach is sort of a halfway house which should appeal to those who want to have an expert manage their money but also to have the ability to dabble by picking a few of their own investments too. The ideal solution here is perhaps an investment platform which offers managed funds and has a buy list of best-of-breed funds, plus the ability for you to ignore their recommendations and choose your own investments if you wish. The risks of this approach are that you need to know what you’re doing at least a little bit in order to make the right selections, but the provider’s own research can help you with this. AJ Bell*, Hargreaves Lansdown*, ii (Interactive Investor)* and Vanguard (which is cheap but only offers its own funds) could all be good options here, but you’ll need to compare fees, investment range and so on to get the right fit.

Fully managed ISA route

A fully managed ISA is one you buy off the shelf, often referred to as a ‘ready-made’ ISA. With this option, you don’t have to worry about the stock selection, investment research, regular rebalancing, or making sure the portfolio is in line with your risk appetite, but you’ll pay a management fee for the privilege. You can get them from a number of providers such as the Share Centre, Hargreaves and Vanguard. You could consider a portfolio managed by a robo-adviser such as Wealthify, Moneyfarm* or Nutmeg.

These often use passive investments such as exchange-traded funds or tracker funds to keep costs low. They will ask you to complete a questionnaire to assess your risk tolerance, affordability and investing goals, before placing you in one of several pre-selected risk-graded portfolios. These services let you pay in and monitor your investments online and through your smartphone, and some have low minimum investments. However, your provider might not disclose exactly what investments you are in, and bear in mind that there are a lot of new entrants to the market with short performance track records so there’s no guarantee that your robo-adviser’s algorithms and investment experts will deliver you a great return. You may find our article on How to choose the best ready-made ISA portfolio useful if you wish to go down this route. 

Which is the best Lifetime ISA?

Providers have been slow to bring out Lifetime ISAs so there’s still not a vast choice. At the time of writing, the best rate on a Cash LISA is 4.40% from Moneybox (this includes an introductory bonus of 0.75% for the first 12 months). But the draw of the LISA isn’t the interest rate anyway, it’s the 25% government bonus and you’ll get this whether you open a cash or an investment version.

Your choice will also depend on the purpose of your LISA – if you’re using it to save for a house deposit, when are you likely to need the cash? If it’s in less than three years, cash is probably a better option. If you’re using the retirement element and you’ve got years ahead of you, choose a Stocks & Shares LISA. Look for platforms with a good fund range if you want to do it yourself, or if you want a ready-made one, robo-adviser Nutmeg offers a fully managed LISA or a cheaper fixed allocation one that requires less management, and there’s even an ethical option. Check out our article Compare the best and cheapest Lifetime ISA.

Which is the best Junior ISA?

For a Junior Cash ISA, the best rate at the time of writing was from Coventry Building Society with a 4.95% interest rate. A Cash ISA can be a good, low-risk way to earn a set amount of interest every year. 

However, given that you’ll have as much as an 18-year time horizon on a Junior ISA, it probably makes more sense to invest to give the money a chance to work harder, if you’re willing to take a bit of risk.

With a Stocks & Shares Junior ISA, your choice will depend on what investments you want to hold in it, if you plan to chop and change investments or whether you’ll just 'set and forget' a simple portfolio. Make sure fees are competitive as these will eat away at your returns over time. Read our comparison of the best Junior ISAs (including Junior cash ISAs and Junior Stocks and Share ISAs).


If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Hargreaves Lansdown, Interactive Investor, AJ Bell, Moneyfarm.