What is an ISA?
Individual savings accounts explained
In this guide, we explore the main types of individual savings accounts (ISAs) and cover how they work, to help you decide if an ISA might be right for you.
For ISAs that involve investing, remember that the value of investments can go down as well as up, so you may get back less than you put in.
What is an ISA?
An ISA lets you save or invest your money without paying tax on the interest you earn or the returns you make, as well as when you take money out.
There are two main types of ISA:
- Cash ISA
- Stocks and shares ISA.
We cover available ISAs below. Most offer either a cash version, a stocks and shares version, or both.
How do ISAs work?
Cash ISAs are different to ordinary savings account because, no matter how much you have saved in your cash ISA, you won’t have to pay tax on the interest you earn or when you cash it in.
Stocks and shares ISAs work in a similar way – there’s no tax on any growth or when taking money out.
Because ISAs have these tax benefits, there’s a limit on how much you can save or invest every year. For cash and/or stocks and shares ISAs, the limit is £20,000. This limit applies to a tax year, which runs from 6 April one year to 5 April the next.
Who can open an ISA?
To open an ISA, you must be at least 18. (Parents or legal guardians can open a junior ISA for children under 18.) You must also be living in the UK, unless you live abroad because you’re:
- a member of the armed forces
- a Crown servant (such as a diplomat or overseas Civil Servant)
- the husband/wife/civil partner of a Crown servant.
Types of ISAs
Cash ISAs and stocks and shares ISAs are the two most popular types, but there are five types of ISA in total. Most offer both a cash option and a stocks and shares option. However, some are only available to certain age groups or have other rules that apply.
Cash ISA
Cash ISAs are savings accounts. They’re tax efficient because, unlike other savings accounts, you don’t pay tax on the interest you earn.
Two common types of cash ISA are:
- Easy access ISAs
You can withdraw money at any time. The interest rate on these is normally ‘variable’, so it can change. - Fixed-rate ISAs
These pay a fixed rate of interest, which tends to be higher than on easy access cash ISAs. In return, you lock your money away for a set period.
Stocks and shares ISA
Stocks and shares ISAs – also known as investment ISAs – are a tax-efficient way to invest.
Despite the name, you can invest in more than just stocks and shares. For instance, you can also invest in bonds. These are essentially loans to companies (corporate bonds) or countries (government bonds) which want to borrow money.
Although some stocks and shares ISAs let you invest directly in different types of investments, with most you'll invest through funds. Funds pool your money with other customers' money and invest that pooled money in a range of different investments.
Lifetime ISA
You must be aged 18 to 39 to open a lifetime ISA, but you can pay in until you’re 50. The lifetime ISA allowance is up to £4,000 each tax year, which the government pays a 25% bonus on (worth up to £1,000 a year).
However, you lose this bonus if you access money in your lifetime ISA before you turn 60, unless either of these apply:
- You use it to buy your first home
- You're terminally ill with less than 12 months to live.
Lifetime ISAs can either be cash ISAs or stocks and shares ISAs.
Junior ISA
Junior ISAs are for children under 18. Only a parent or legal guardian can open a junior ISA for children under 16. Children aged 16 or 17 can open their own junior ISA.
Two types of junior ISA are available: cash and stocks and shares. A child can only have one of each type.
The maximum you can pay into a junior ISA for each child in a tax year is £9,000. This can be split between a cash and a stocks and shares junior ISA.
Usually, you can only open a junior ISA for a child living in the UK. An exception is if both these things apply:
- you’re a Crown servant (such as a diplomat, in the armed forces or an overseas Civil Servant); and
- your child depends on you for care.
Money in a junior ISA is locked away until the child’s 18th birthday.
Innovative finance ISA
Innovative finance ISAs let you invest in peer-to-peer (P2P) lending. Here, your money is loaned to people and businesses looking to borrow. The aim is to make a return when the person or business pays back the loan, plus any interest. Any return you make is tax free.
What is the ISA allowance for 2025/26?
The ISA allowance for 2025/26 is £20,000. This means you can put up to £20,000 into most ISA accounts or split it across different types of ISA.
While the overall ISA limit in the 2025/26 tax year is £20,000, some ISAs have a lower limit.
| Type of ISA | Annual ISA allowance 2025/26 |
| Cash ISA | Up to £20,000 |
| Stocks and shares ISA | Up to £20,000 |
| Innovative finance ISA | Up to £20,000 |
| Lifetime ISA | Up to £4,000 |
| Junior ISA | Up to £9,000 per child* |
* The junior ISA allowance per child is separate and in addition to the ISA allowance of the parent/guardian making the payment.
Should I get an ISA?
ISAs can be a great tax-efficient way to save or invest, as you don't pay tax on any interest you earn or returns you get. Plus, there's no tax to pay when you take money out.
Cash ISAs are worth considering for short-term goals where you’ll need your money in the next five years. Stocks and shares ISAs are more suited for longer-term financial goals, where you can leave your money invested for at least five years.
Whether or not an ISA is right for you – and what type of ISA you should get – depends on your circumstances. If you’re not sure, ask a financial adviser.
