What is ISA (Individual Savings Account)?
A tax-free savings wrapper. You can save up to £20,000 per tax year in ISAs, and any interest earned is completely tax-free — it doesn't count towards your Personal Savings Allowance. Cash ISAs currently offer rates competitive with normal savings accounts.
An ISA is a tax wrapper rather than a single product: money held inside one grows free of UK income tax and capital gains tax. The overall allowance is £20,000 per tax year, spread across the ISA types in any proportion. Interest earned in a cash ISA sits entirely outside the Personal Savings Allowance, so it stays tax-free no matter how much other savings interest is earned.
The main types are the cash ISA, the stocks and shares ISA, the Lifetime ISA (up to £4,000 of the allowance, with a 25% government bonus and age and usage restrictions) and the Innovative Finance ISA. Since the 2024/25 tax year it has been possible to pay into more than one ISA of the same type in a single year.
Two mechanics are worth knowing. Transfers between providers keep the tax wrapper intact — withdrawing and re-depositing does not. And "flexible" ISAs allow money to be withdrawn and replaced within the same tax year without using up more of the allowance; not all providers offer this.