ISAs Explained
ISAs allow you to save without paying tax – up to an annual limit – and there are lots of accounts to choose from. From fixed rate accounts to easy access, here we look at the different types of ISA and explain the key things you need to know.
Key takeaways
Individual savings accounts (ISAs) in the UK offer tax-free savings and investments
You can deposit up to £20,000 per tax year
There are five different ISA accounts that you can choose from
You can now open as many new stocks and shares ISAs, cash ISAs, or innovative finance ISAs as you like during the tax year
What is an ISA?
An individual savings accounts (ISA) allows you to save or invest your money without paying tax.
While many providers offer ISA accounts, there are two main types of ISA to choose from:, a cash ISA or a stocks and shares ISA. A cash ISA works like a standard savings account, providing a secure place for your money to grow interest-free.
A stocks and shares ISA offers potentially higher return by investing in various assets, although as with any type of investment there is also an element of risk.
How do ISAs work?
ISAs offer tax-free benefits that are not available with standard savings accounts. You can open an ISA with a huge range of UK providers, including banks and investment firms.
The tax year, starting on April 6 and ending on April 5, is your window to save or invest up to £20,000, which can be distributed across different types of ISAs.
After a change to the way ISAs work, from the 2024-25 tax year, you can now open as many stocks and shares ISAs, cash ISAs or innovative finance ISAs as you like over the course of the tax year, provided you stay within the £20,000 annual subscription limit.
What are the different types of ISAs to choose from?
Here are the different ISAs to choose from:
An account which provides tax free savings
You can deposit up to £20,000 per tax year
Choose between a fixed rate account or instant access options
Open to anyone aged 18 or older
Up to £85,000 of your money is protected through the Financial Services Compensation Scheme (FSCS)
The main benefits: security and tax free interest
Specifically for those who are saving towards their first home or retirement
Save up to £4,000 a year with a 25% government bonus
For individuals aged 18 to 39
There are limits on the value of the house you can buy with a LISA
The main benefit: a government bonus on your savings, but watch out for penalties if you withdraw your money for a reason other than a first home or retirement
A nest egg for those under 18
Save up to £9,000 a year tax free
Can be in cash or stocks and shares
Money can’t be accessed until the child turns 18, at which point it becomes their account
The main benefit: tax free savings or investments for a child
Cash ISA
Lifetime ISA (LISA)
Junior ISA (JISA)
Can I open an ISA?
The exact requirements of an ISA will depend on the account you open and the provider. But most require the following:
You must be a UK resident
Aged 18 or over
You may have to deposit a minimum amount to open an account
You must be aged between 18 and 39to open a Lifetime ISA
What is the ISA allowance in the 2024/25 tax year?
Each person over 18 gets an ISA allowance of £20,000 per tax year. It's important not to confuse this with the personal savings allowance or PSA, as this is entirely separate.
The PSA is a government-set threshold for tax-free interest earnings outside of ISAs, with limits based on your tax rate. Crucially, interest earned in an ISA doesn't eat into your PSA.
How many ISAs can I open?
As of April 2024, the ISA rules changed. You can now open as many new stocks and shares ISAs, cash ISAs or innovative finance ISAs as you like in any tax year, as long as you stay within the £20,000 annual subscription limit.
How do ISA transfers work?
If you have an older cash ISA with a low interest rate, it’s time to move the money into an account where you can earn more. It’s easy and quick to do this, although there are rules you must follow to make sure you keep the tax free benefits.
You will need to use a transfer form from your ISA provider to keep the tax benefits. If you take the money out yourself and move it into the new account, you may have to pay interest on it.
Not all accounts allow in ISA transfers so always check this before opening one. Our guide to transferring an ISA provides a detailed roadmap for the process.
What are the best alternatives to ISAs?
ISAs are a great way to save or invest, but if you can have an account paying a higher rate of return, even after any tax is paid, it might be worth considering. Here are some alternatives to look at:
Fixed-rate bonds offer higher rates for fixed-term savings but watch out for early withdrawal fees
Easy-access accounts: provide flexibility but may have lower rates. Keep an eye on bonus rates and their expiry dates
These can pay competitive rates, but they often come with strings attached, like minimum monthly deposits or monthly fees
Fixed-rate bonds
Easy-access accounts
High-interest current accounts
Useful guides
We have a range of guides with more information about savings accounts and ISAs, including:
Comparing ISAs with MoneySuperMarket
Before you choose a new ISA account it’s important to shop around and compare the different types of ISA on offer and the potential returns they offer.
MoneySuperMarket can help with your search as we list ISA accounts from a range of leading UK providers.
You can compare rates – see if they’re fixed or variable rates – or if they include a bonus rate. Once you’ve made your choice you can simply click through to the provider to start with the opening of your new ISA.
