What is an Individual Savings Account (ISA)?

If you’re thinking of opening a savings account, you’re likely to come across ISAs.

These are a common type of savings account in the UK. But what is an ISA and how does it work?

In this handy guide, we’ll run through everything you need to know about ISAs. This includes types of ISA, how to open one, and the limits for deposits and withdrawals.

We’ll also show you a smart, alternative way to make your money work harder. With Wise Interest**, you can help your money grow by investing in a fund that holds government-guaranteed assets - all within your Wise account from the money services provider Wise. It’s not a bank account but offers some similar features, and your money is safeguarded.

Learn more about Wise Interest

Capital at risk. Growth not guaranteed.

What is an Individual Savings Account (ISA)?

ISA stands for Individual Savings Account. It’s a type of savings account where you don’t pay tax on the money you earn. There’s no need to report any interest, income or capital gains from it on your tax return. With other types of savings accounts, you are required to pay tax on any interest you earn over your personal savings allowance - as well as on any income or capital gains, depending on your earnings.

There are a few different types of ISAs available in the UK. These are cash ISAs, stocks and shares ISAs, lifetime ISAs and innovative finance ISAs. We’ll look at each of these in more detail shortly.

Many providers offer ISAs, such as Santander, Halifax, Nationwide and Virgin Money to name just a few high street banks which list ISAs among their savings account ranges.

How does an ISA work?

There are a few differences between an ISA and a standard savings account. For starters, there’s an annual limit on how much you can save in an ISA - known as your ISA allowance. This limit applies every tax year, which runs from 6 April to 5 April. For the 2005-2006 tax year, the allowance is £20,000.¹

You can have multiple ISAs, but there are some rules to follow. You can only pay into one Lifetime ISA in a tax year, with a maximum contribution of £4,000. For all other types, you can open and pay into more than one.¹

The total amount you deposit into your ISAs will need to stay within your annual ISA allowance. So for example, you can add £10,000 in a stocks and shares ISA and £10,000 in a cash ISA to stay within the £20,000 limit.¹

Depending on the account type, whether it’s fixed, limited access or easy access, you may be able to withdraw your money and make multiple deposits. For some ISAs though, you can only deposit once and will only be able to access your money once the fixed term is over.¹

Some ISAs pay interest on your savings, just like a regular savings account. Others invest your money, so your returns come from investments and may go up or down.

What is an e-ISA?

Similar to an e-savings account, an e-ISA is an account that is wholly managed online (or via a mobile app). It’s a popular choice with people who prefer to do their banking via internet or mobile banking.

The 4 types of Individual Savings Accounts (ISAs)

There are four main types of ISAs available in the UK. Let’s find out a little more about each in turn.

Cash ISAs

A cash ISA is the most similar to a standard savings account, but offers tax-free interest on your money. There are a few different kinds of cash ISA, including instant access, limited access and fixed rate. Some can be opened with as little as £1.

Stocks and shares ISAs

This kind of ISA is for investments, where you don’t pay tax on returns. It can be thought of as a kind of wrapper, which sits around a portfolio of investments.

These may include:¹

• Individual stocks and shares
• Exchange-traded funds (ETFs)
• Government and corporate bonds
• Unit and investment trusts.

The ISA provider may offer fund options based on your preferred level of involvement and risk.

Innovative finance ISAs

Known as an IFISA, this kind of ISA helps you earn tax-free interest in alternative types of loans. This includes peer-to-peer lending, where you lend money directly to people or businesses, and crowdfunding debentures, which means investing in a company by buying its debt. Some specialized funds that can’t be held in a stocks and shares ISA can also be included.¹

Lifetime ISAs

A lifetime ISA (LISA) is a longer-term savings product. It can be used for two distinct purposes - either buying your first home (replacing the now-defunct Help to Buy ISA) or saving for retirement.²

Unlike a standard ISA, a LISA has some restrictions. You must be aged 18 to 39 to open it, can only contribute to it until you turn 50, and can only withdraw money when you buy your first home or turn 60 years old, depending on what you’re using the account for.²

There are also major benefits: You can save up to £4,000 per tax year, which counts towards your £20,000 annual ISA limit. On top of that, the UK Government adds a 25% bonus of up to £1,000 per tax year.²

LISA comes in two types: Cash LISAs that let you earn tax-free interest like a regular savings account, and Stocks and Shares LISAs that invest your money in stocks, bonds, or funds. Some providers even let you split your contributions between cash and investments in the same LISA.²

What do you need to open an ISA?

To open an ISA in the UK, you’ll usually need to provide the following:

• Your contact details and address
• Your National Insurance (NI) number
• Your bank account details for deposits and withdrawals
• Details of any current ISAs if you want to transfer in.

Who can open an ISA?

Although it depends on the provider’s terms and conditions, you should be able to open an ISA as long as you’re a UK resident (for tax purposes) over the age of 18.¹

However, there are exceptions and additional rules for some ISAs. To open a Lifetime ISA, for example, you must also be under 40 years old. And if you were born between 6 April 2006 and 5 April 2008, you can open one cash ISA before you turn 18.

How much can you put in an ISA?

Each year, the UK Government sets an annual ISA limit - this is the maximum you can save in an ISA during the tax year. For 2025-2026, the limit is £20,000.¹

What are the limits for withdrawals with ISAs?

This can vary depending on the type of ISA and the provider. You’ll need to check with the bank or building society to see how much and how often you can withdraw your money.¹

Lifetime ISAs have the strictest rules. Regardless of the provider, you can only withdraw money without penalty if you’re buying your first home or aged 60 or older. If you don’t meet those conditions, you’ll be hit with a 25% government withdrawal charge.²

**Capital at risk. In the UK, Interest and Stocks are provided by Wise Assets — this is the trading name of Wise Assets UK Ltd, a subsidiary of Wise. Wise Assets UK Ltd is authorised as an investment firm and regulated by the Financial Conduct Authority (FCA). Our FCA number is 839689. We do not give investment advice, and you may be subject to pay tax. If you're not sure, seek qualified advice. You can find more information about the funds on our website.

FAQ on Individual Savings Accounts (ISAs)

How many ISAs can I have?

You can have as many ISAs as you like, but you’ll only be able to open one of each type per tax year. However, you can only open and contribute to one Lifetime ISA per tax year.

Is an ISA better than a savings account?

It all depends on your circumstances. If you think you’ll exceed your personal savings allowance during the tax year and want to avoid being taxed on the interest, income or capital gains you earn, an ISA could be the better choice.

Is money safe in an ISA?

Yes, as long as the bank, building society or other provider is covered by the Financial Services Compensation Scheme (FSCS). This offers protection of up to £85,000 per person just in case the provider goes under.³

However, if you have a Stocks and Shares ISA or Innovative Finance ISA, your money is invested in the market or lent out via peer-to-peer platforms, so while it’s still covered by the FSCS for provider failure, your investments can go up or down in value and your capital is at risk.³

Sources used:

Sources last checked on date: 14-May-2025