An ISA — Individual Savings Account — is a savings or investment account where you don't pay tax on the interest or returns you earn. Every UK adult gets an annual ISA allowance, and anything saved within that allowance is protected from income tax and capital gains tax, for as long as it stays in the ISA.
That's the core of it. The rest — the different types, the rules around withdrawals, what happens to the allowance if you don't use it — is detail that this guide covers in plain English.
There's also a calculator above to show what your ISA savings could look like over time, based on how much you put in and what interest rate you're getting.
The ISA Allowance — How It Works
Every UK adult aged 18 or over gets an annual ISA allowance. For the 2025/26 tax year this is £20,000. You can put up to this amount into ISAs in a single tax year (6 April to 5 April), spread across different ISA types if you want.
A few important rules:
You can't carry unused allowance forward. If you only use £5,000 of your £20,000 allowance this tax year, the remaining £15,000 doesn't carry over. Each new tax year starts fresh.
You can open multiple ISAs. Since April 2024, you can open and pay into more than one ISA of the same type in the same tax year — so two Cash ISAs at different banks in the same year is now allowed. The total across all ISAs still can't exceed £20,000.
Money already in an ISA stays protected. Previous years' ISA savings don't count towards this year's allowance, and the tax-free status doesn't expire as long as the money stays in the ISA.
The Different Types of ISA
There are four main types of ISA available to UK adults. They work differently and suit different purposes.
Cash ISA
The simplest type. Works like an ordinary savings account, but the interest is tax-free. Useful for accessible savings — an emergency fund, a short to medium-term savings goal, or simply keeping your money somewhere it earns interest without tax complications.
Easy-access Cash ISAs let you withdraw and deposit money as often as you like. Fixed-rate Cash ISAs lock your money in for a set period (usually one to five years) in exchange for a higher interest rate.
Worth considering if: you're a basic or higher-rate taxpayer saving a meaningful amount, or you want to keep things simple.
Stocks and Shares ISA
Instead of earning interest, your money is invested — in funds, shares, bonds, or a mix. Returns are not guaranteed and the value can go down as well as up, but over long time periods (ten years or more) the historical average return has been significantly higher than cash savings rates.
The tax-free wrapper matters more here, because capital gains and dividend income would otherwise be taxable once they exceed annual allowances.
Worth considering if: you're saving for something ten or more years away (retirement, long-term wealth building) and you're comfortable with the value fluctuating.
Lifetime ISA (LISA)
Available to UK adults aged 18–39. You can save up to £4,000 per year into a Lifetime ISA, and the government adds a 25% bonus — up to £1,000 per year. The money can only be used for two purposes: buying your first home (on properties up to £450,000), or retirement (from age 60).
Withdrawing for any other reason incurs a 25% government penalty — which actually takes back more than the bonus added, so effectively costs you some of your own money. This makes it unsuitable as a general savings account.
Worth considering if: you're a first-time buyer, or you're self-employed and looking for a pension-style saving option with a government top-up.
The LISA withdrawal penalty is 25% of the total amount withdrawn, not 25% of the bonus. This means you lose some of your own money, not just the government bonus. Only use a LISA if you're confident you'll use it for a first home or retirement.
Junior ISA (JISA)
For children under 18. Parents or guardians open it; family and friends can contribute. The annual allowance is £9,000. The money is locked until the child turns 18, at which point it becomes their ISA and they can do whatever they want with it.
Covered in more detail in our Junior ISA guide.
Cash ISA vs Ordinary Savings Account — Does It Matter?
For many basic-rate taxpayers, the Personal Savings Allowance means the first £1,000 of savings interest each year is already tax-free (£500 for higher-rate taxpayers, £0 for additional-rate). If your savings interest is below this threshold, a Cash ISA and a regular savings account are effectively the same in tax terms.
The ISA becomes more valuable when:
- Your savings interest exceeds your Personal Savings Allowance
- You're a higher-rate or additional-rate taxpayer
- You anticipate your savings growing significantly over time
- You want to lock in tax-free status now while the allowance is available
There's also a practical argument for ISAs even at lower balances: the tax-free status is permanent for money inside the wrapper, whereas the Personal Savings Allowance could theoretically change in future budgets.
ISA Myths Worth Clearing Up
"You lose your ISA allowance if you withdraw money." Not with flexible ISAs. Many modern Cash ISAs are flexible — meaning if you deposit £10,000 and then withdraw £3,000, you can re-deposit that £3,000 within the same tax year without it counting as a new subscription against your allowance. Check whether your ISA is flexible before withdrawing.
"You have to use your allowance all at once." No — you can drip money in throughout the tax year. £500 a month into a Cash ISA uses the same allowance as a lump sum at the start of the year.
"ISAs are only for wealthy people." The tax benefit is proportional to the amount saved, but there's no minimum deposit. Opening a Cash ISA with £50 is perfectly valid and builds the habit. The tax saving at low balances is small, but the habit and the structure have value regardless.
What Happens to Your ISA When You Die
Your ISA savings pass to your estate in the normal way. However, a surviving spouse or civil partner can inherit your ISA allowance — meaning they can shelter an additional lump sum equal to your ISA value in their own ISA, on top of their regular annual allowance. This is called an Additional Permitted Subscription (APS) and can be significant for couples with large ISA balances.
For more detail on ISA rules and current allowances, check the official guidance at gov.uk/individual-savings-accounts.
Frequently Asked Questions About ISAs
The annual ISA allowance for 2025/26 is £20,000. This can be split across different ISA types — for example, £10,000 into a Cash ISA and £10,000 into a Stocks & Shares ISA — as long as the total doesn't exceed £20,000. The Lifetime ISA has its own sub-limit of £4,000, which counts within the overall £20,000.
Since April 2024, you can open and contribute to more than one ISA of the same type in the same tax year. Previously you could only pay into one of each type per year. The total contributions across all ISAs in a tax year still cannot exceed £20,000.
If you exceed the annual allowance, HMRC will contact you and the excess will need to be withdrawn. It's worth checking your contributions if you have multiple ISAs open. Most ISA providers will alert you if you're approaching the limit.
Yes. You can transfer an ISA from one provider to another without losing the tax-free status and without it counting as a new contribution. Always use the official ISA transfer process rather than withdrawing and re-depositing — withdrawing takes the money out of the ISA wrapper.
The investments inside a Stocks and Shares ISA can go down in value as well as up. The ISA wrapper is tax-efficient, but it doesn't protect against investment losses. Most financial advisers suggest only using a Stocks and Shares ISA for money you won't need for at least five to ten years, giving time to recover from any short-term falls in value.
No. Money withdrawn from an ISA is tax-free, including any interest or growth earned inside it. This is one of the key advantages — you don't pay tax on the way in (it's paid from after-tax income), but you also don't pay tax on the growth or on the way out.
This guide provides general information about ISAs and is not financial advice. Tax rules and ISA allowances can change. Always check current allowances with HMRC (gov.uk) or a qualified financial adviser before making decisions. Stocks and Shares ISA values can go down as well as up.