What is the safest ISA?

Written by
Eszter Z.
Fact checked by
Adam N.
Updated
Apr 2024

Uncertainty has been on the rise all around the world, including in the world of finance. It is only natural if you are wondering whether your investments or savings are safe, and whether they are safely held in Investment Saving Accounts (ISAs), available for UK residents. 

Generally speaking, ISAs, provided by regulated brokers or banks, are well-protected by the UK’s Financial Services Compensation Scheme (FSCS). This protects your savings and investments up to £85,000 per financial provider. 

 

THE ESSENCE

  • Most types of ISAs are protected up to £85,000 under the Financial Services Compensation Scheme (FSCS)
  • Your ISA provider, broker or bank, needs to be registered with the UK’s Financial Conduct Authority (FCA)
  • Always check with the FCA if your financial firm is registered and regulated to be sure you’re covered
  • Unexpected, pushy emails, calls, and text messages should raise the alarm that you might be dealing with a scam

 

You might also be wondering which type of ISA is the safest. Which ISA account you should choose depends on your risk tolerance and financial goal, and we will help you find the right one for you. 

Our expert team here at BrokerChooser specializes in making sense of a complicated financial world. We have done all the work for you, saving you hours of research, and reviewed brokers based on BrokerChooser's innovative methodology, and curated a list of the best brokers for opening an ISA account.

How safe is my money in an ISA?

The Financial Services Compensation Scheme (FSCS) protects the first £85,000 of any cash or investments held in ISAs. However, your ISA provider, or providers – banks, brokers – need to be regulated by the UK’s regulatory body, the Financial Conduct Authority. To be sure, you can check on the FCA website if your service provider is registered here

If you have more than £85,000 in ISA savings or investments with one financial institution, you could lose what is above the threshold. One way to avoid this is to open ISAs with different providers.

There are different types of ISAs, you can read more about them in detail here. There is one type of ISA that the FSCS does not cover, and it is the Innovative Finance ISA. You can find out more about this particular type of ISA here, but you should know that Innovative Finance ISAs are not covered by the FSCS and are therefore considered a higher-risk type of investment.

What is the FSCS?

The Financial Services Compensation Scheme (FSCS) is the UK's deposit insurance and investor compensation scheme for authorised financial services firms. It was established in 2001 and it is financed by contributions from the financial services industry. The FSCS’s job is to pay compensation to consumers if a firm is unable to pay claims against it.  

The UK regulators, the Financial Conduct Authority and the Prudential Regulation Authority, set the financial compensation limits and compensation rules. The FCA also sets the rules for the FSCS, which covers deposits, insurance policies, investments, and mortgages. 

In the unfortunate event that your financial firm fails, you should make a claim with the FSCS directly as it is free. Some claims management companies might offer to handle the process for you, but they will also charge you. 

You can start your claim process here

What are the risks of an ISA?

When thinking about saving or investing in an ISA, you should consider your risk tolerance and financial goals when considering the different types of ISAs . You can find out about the different types of ISAs in this article

Types of ISAs
  Cash ISA Stocks&Shares ISA Innovative finance ISA Lifetime ISA
Assets you can hold Cash Various assets (stocks, ETFs, bonds, mutual funds, etc.) Alternative investments like peer-to-peer lending Cash and investments (stocks, ETFs, bonds, mutual funds, etc.)
Can you withdraw funds without penalty? Yes Yes Yes No*
Is it protected? Yes, up to £85k under FSCS Yes, up to £85k under FSCS No Yes, up to £85k under FSCS
Is there an age limit? No, unless you open a Junior ISA** No, unless you open under Junior ISA** No Yes, from age 18 to age 40

* 25% fee is charged, unless you turned 60 or you buy your first home with mortgage

**You can open a Junior ISA for children under 18

 

Let’s zoom in on some of the safety considerations. 

Depositing money in a cash ISA pays you interest and shields you from financial market volatility. While your money is safe in a cash ISA, the value of your savings might decline in real terms if the interest you receive is less than the rate of inflation. 

Stocks and shares ISAs are investments, not savings. Investing is a riskier option than keeping your savings in cash ISAs, but the returns could be higher in the longer term. Investment options include shares of individual companies, corporate and government bonds, trust and investment funds, or life insurance policies. Before investing, think about how comfortable you are with taking and managing risks. 

An Innovative Finance ISA enables you to lend money to individuals and businesses tax-free. Transactions are carried out via an online peer-to-peer lending platform in return for a fixed amount of interest over a set period. Since there is no bank involved in the loan, you can reap higher returns but the associated risks are also much bigger. Borrowers can default and fail to pay you back and you would be unable to make a claim for compensation because your money isn’t protected by the FSCS. 

How to spot an ISA scam?

We want to give you some tools to help you protect yourself from potential scams. If you are looking at different ISA providers, always make sure to check the Financial Services Register to ensure the company is authorised or registered. The FCA has information on firms and individuals that are regulated by it.

 

What to watch out for: 

  • Some scams use names of legit and regulated financial companies, so you should check the FCA register for any warnings about so-called cloned firms
  • Unexpected, pushy calls, emails, and text messages should be a warning sing
  • Don’t be pressured into taking action, if you have doubts about a financial scheme take your time to find out more
  • Do not give out your bank account or credit card details unless you are certain about a firm
  • Check your bank accounts regularly, and look for suspicious activity 


Check out further tips on how to spot a scam in this article put together by our experts.

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Further reading

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.

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Eszter Zalán
Author of this article
Eszter is a former Editor and Financial Journalist for BrokerChooser. She wrote and edited BrokerChooser's content from 2021 onwards, bringing her more than a decade-long experience in journalism to the team. She has covered world affairs and several financial crises, and dove deep into SEO and coding to make BrokerChooser's content more accessible to users.
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