What is an ISA?


  • ISAs (Individual Savings Accounts) are tax-efficient accounts, introduced by the government, to encourage more of us to save
  • Each tax year the government sets a limit on the amount you can save in an ISA, currently £15,240
  • You can choose to save in a cash ISA, a stocks and shares ISA or a combination of both providing you don't exceed the limit
  • If you are 16 or over and resident in the UK for tax purposes you can apply for a cash ISA, but you need to be 18 or over to apply for a stocks and shares ISA.


Additional information about how ISAs work

ISA allowance

Each tax year – which runs from 6 April until 5 April the next year – you have a limit on how much money you can save in an ISA. This is your annual ISA allowance, and you can’t go above this limit. You can save up to £15,240 for the current tax year in either a cash ISA, a stocks and shares ISA or a combination of both.  You are limited on how many ISAs you can subscribe to each tax year.

You can only put money into one cash ISA and/or one stocks and shares ISA in each tax year and you must make sure you don't exceed the total maximum allowance. The only exception is for customers who have opened a separate cash ISA or stocks and shares ISA to pay in an Additional Permitted Subscription allowance following the death of a spouse or civil partner.

Cash ISAs

Cash ISAs are like a normal savings deposit account, but with a limit to how much you can pay into them each year. With a cash ISA you can make the most of your savings because the interest earned is free from tax, which you may have to pay on other savings accounts. If you have a savings account, it might make sense for it to be a cash ISA.

Cash ISAs are simple to open and in many ways no more complicated than a standard savings account. Despite this, many people haven't opened an ISA and a lot of those people have savings elsewhere. If you are keeping your savings in a regular bank or building society account, you could be paying unnecessary tax on the interest (and you may not realise you’re paying this tax as the bank deducts it automatically).

The main difference between cash ISAs and other savings accounts is that once you’ve paid in your full year’s ISA allowance, if you withdraw some money you can’t replace any of the money you’ve withdrawn in the same tax year.

Stocks and shares ISAs

Stocks and shares ISAs are another way to invest up to your annual ISA limit, in a fund that’s linked to the performance of the stock market. They are one of the most tax efficient ways to invest in a range of investments because you have no personal liability for income tax or capital gains tax (although the tax paid on any dividends within your fund cannot be reclaimed). However, the value of such an investment will go up and down, and you may get back less than you originally invested.

  • How do ISAs save you tax?

    The interest on cash ISAs is tax free. This means that, while you normally pay income tax on interest in other savings accounts, you don't pay any on cash ISA interest. You do not pay any additional personal income tax or capital gains tax on any money you earn from a stocks and shares ISA.

  • Who can have an ISA?

    You just need to be 16 or over to apply for a cash ISA, and 18 or over to apply for a stocks and shares ISA – and a UK resident for tax purposes in both cases. Crown employees living abroad (such as diplomats and members of the armed forces) can also apply.

  • Is it difficult to transfer money between ISA providers?

    You can often transfer your ISA (either type) between different providers – you will need to ask your new ISA manager to arrange the transfer for you. You can also move money from a cash ISA into a stocks and shares ISA or vice versa without affecting your yearly allowance, unless you are transferring current tax year contributions.

  • Do you need a lot of money to start an ISA?

    No. You can open many cash ISAs for as little as £1. Stocks and shares ISAs generally have higher minimum contributions.

  • What are the ISA savings limits?

    During this tax year you can save up to £15,240 in a cash ISA, a stocks and shares ISA or a combination of both options.

  • When does the tax year run to?

    The tax year runs from April 6 in one year to April 5 in the following year.

  • What is the difference between variable and fixed rate ISAs?

    A variable rate ISA offers you a rate of interest which can go up and down. With a fixed rate ISA you know in advance what your interest rate will be over your selected fixed term.

    You must not pay into more than one cash ISA in any one tax year. The only exception is if you have opened a separate cash ISA to pay in an Additional Permitted Subscription allowance following the death of a spouse or civil partner.

  • Do you have to lock your money away for a long time?

    It’s up to you. Variable rate cash ISAs offer savers instant access to their money. Fixed rate ISAs offer savers a higher rate of interest if you can lock your savings away for 2 years or more (withdrawal charges will apply). Stocks and shares ISAs may be more appropriate if you are looking to invest for a period of 5 to 10 years.

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