The short answer is there's not a huge difference between ISAs and Bonds, apart from variations to limits and accessibility. With the exception of Stocks and Shares ISAs (more on those later), both offer secure places in which to save your money and earn interest on your savings. So don’t worry if you have confused them before now. You’re not alone.

Adding to the challenge of choosing between the two is the fact that there are different types of ISA and different types of Bond. Each have subtle differences that will affect your decision about which savings account is best for you.

ISA stands for Individual Savings Account. Its main benefit is that it offers tax-free interest on what you save. However, there is a limit as to how much you can pay into an ISA each year and this is currently £20,000. You can have multiple ISAs but you still can’t go over your £20,000 allowance and you can only open one Cash ISA in each tax year. 

A quick example: 

For more information about ISAs and the ISA Allowance, take a look at our ISA Allowance guide.

If you have a flexible ISA, then you can withdraw funds at any time. For example, our easy access Cash ISA allows you to take money out whenever you want because there are no withdrawal restrictions. You can also pay that money back in within the same tax year and it won’t affect your £20,000 ISA savings allowance. 

A quick example: 

However, different rules apply with different types of ISA. For example, you can usually still withdraw money from a fixed interest rate ISA but you will lose interest in penalties. This means you’ll have to sacrifice some of the interest you have built up to withdraw your money. 

There are a few different types of ISA to choose from, all with their own terms. See our ISA guide below for more information on the different types:

Lifetime ISA 

A Lifetime ISA or LISA is designed to help those aged 18 to 39 buy their first home or save for retirement. You can save up to £4,000 a year - either as a lump sum or by paying into it in smaller amounts. The government then adds 25% on top. 

A quick example: 

After a minimum of 12 months, first time buyers can then put the money saved in the LISA towards a deposit for a home costing up to £450,000. 

Cash ISA

If you know you’ll need access to your money then an easy access Cash ISA may be the account for you. You can get to your savings whenever you want and you usually won’t have to pay any penalties. The interest you earn can be at a fixed or variable rate. 

Fixed Rate ISA

When you put your money into a fixed rate or fixed-term ISA, you’re agreeing to lock them away for a fixed amount of time or pay a sizeable penalty. That period of time could be anything from one year to five years depending on the account you choose. The benefit is that you’re guaranteed a fixed interest rate for that term and it is typically higher than the interest from an easy access Cash ISA. 

Stocks and Shares ISA

A Stocks and Shares ISA is very different to any of the above. With an investment ISA you’re investing your money into stocks and shares rather than saving it in a secure place. 

The only similarity is the £20,000 ISA allowance still applies. But while with a Cash ISA you don’t pay tax on the interest, with an Investment ISA you don’t pay tax on the returns of your investments. 

It’s important to note that investing in stocks and shares is risky. You could earn more by putting your money in an account like this but you could also lose some or all of the money you invest. The stock market is unpredictable and there are no guarantees. 

Junior ISA

If you’re looking to open a children’s account a Junior ISA is a great option. Junior ISAs are capped at savings of up to £9,000 per year but bear in mind that the child cannot access the savings until they turn 18.

Innovative Finance ISA

An Innovative Finance ISA (IFISA) enables you to earn tax-free interest on peer-to-peer (P2P) lending. P2P lending allows account holders to offer up their savings as loans to small businesses and individuals. The loans would then be paid back with interest on top.

British ISA

A new addition to the ISA lineup is the British ISA, which was announced by the Government in the 2024 Spring Budget. It’s early days and there will be consultation on how this will work before it’s officially launched, but similar to an Innovative Finance ISA, the British ISA - or ‘UK ISA’ - is designed to encourage investment in businesses, specifically in the UK. The British ISA will have a £5,000 allowance, which will have the same tax advantages as current ISAs, however this will be on top of the current £20,000 allowance.

You can transfer your ISA from one provider to another, or from one type of ISA to another at any time. If you do this during the tax year, however, you must transfer the full amount of funds. For Fixed Term Cash ISAs, you may be liable to pay an interest penalty if you’re transferring part way through the fixed term, so if you’re considering transferring be sure to look at your terms and conditions.

A bond is so named because you are tied in. It is a more restrictive way to save as it is essentially a no access savings account where you lock your money away but because of this, generally pays more interest in comparison to other savings accounts. 

Fixed rate bonds will run for a set period of time, anything from a few months to five years and even longer in some cases, and the interest will be fixed over a set period. 

When your bond comes to the end of this term, you’ll have the option to transfer to a new bond or transfer your funds to a new provider. If you do neither of these, your balance will automatically be transferred into an access account, which will usually have a lower interest rate. We will write to you before your bond reaches maturity to set out your maturing savings account options.

For more information, take a look at our detailed guide on how savings bonds work here.

No, in most cases you won’t be able to withdraw your money. Some Bonds will allow earlier access but you will likely pay an interest penalty. For the period of the Bond, you’re required to leave your money untouched.

Not only can you not take any of your money back out but you can’t add additional funds either. This makes Bonds more suitable for those who have a lump sum they want to save rather than those who want to make contributions regularly or when they are financially able to do so. 

Typically savings bonds are fixed rate investments where you earn a fixed amount of interest in a fixed term and as such, this way of savings differs to flexible access savings. There are two forms of long term savings bonds:

Fixed rate savings bonds

Fixed interest savings bonds have a set interest rate for the duration of the bond, so you know at the outset the interest you will make once the bond matures.

Tracker bonds

There is slightly more risk with this type of savings bond. These bonds track a specific index, such as the Bank of England base rate and your interest is calculate on the rate changes over the savings period.