ISAs are a tax-free wrapper for savings and investment products, which enable you to put away a set amount of money in any tax year to April. With other savings products, basic rate tax payers are looking at 20% tax, while high rate payers are looking at 40%. On 1st July 2014, the government changed ISAs to New ISAs (NISAs) to take into account subscription limits and flexibility of how you can invest your money between cash, stocks and shares or a combination of both. The annual allowance for the New ISA in the 2024/2025 tax year was £20,000, which remains unchanged for the following tax year 2025/2026. You can split the amount you pay into an ISA between a Cash NISA and a Stocks and Shares NISA, as you choose, up to the new overall NISA limit.
There are two types of ISA, these are: Cash ISA: These offer a safe short-term savings and are usually taken through banks and building societies. You only need to be 16 years old to open one of these. Cash ISA savers can transfer their savings to a Stocks and Shares ISA. These may involve investment funds; unit trusts, shares, bonds, as well as life insurance policies, and are usually taken through an investment company. Like any investment, there is a risk that you may not recover all of your money.
Take advantage of the vast benefits of a tax-free savings account by making sure that you get one with the best cash ISA rates available.
The main benefit of a cash ISA is that you will earn tax-free interest on your savings. If your savings are deposited in a standard savings account, at least 20% of the interest you earn goes to the tax man. For those in higher tax brackets this goes up to 40%, and up to 45% for those in the highest bracket.
Putting as much of your savings as you can into a cash ISA is often a good idea, protecting a portion of your savings from tax.
A Stocks & Shares ISA is used to invest in a wide range of stocks, shares and investment funds. The ISA wrapper allows any returns to be paid tax efficiently. Stocks & Shares ISAs are designed to be long term investments, as your money can either increase or decrease, rather than simply increasing steadily due to interest as in a cash ISA. While the potential gain is greater than with a cash ISA, there is always the risk of losing some of your investment.
You can invest in up to two ISAs each tax year.
Try not to withdraw money from your ISA. Once you’ve invested up to the limit, withdrawals mean you cannot top it up again.
If you are switching ISAs, do not just withdraw the cash – you will lose your tax-free element! Make sure the new bank or building society can set up the transfer for you.
Cash ISAs are safe and ideal for short-term savings. Stocks and Shares are more risky and need to be invested for longer periods. Make sure you can live without the cash if you opt for the latter.
If you're a taxpayer, make use of your annual ISA tax-free allowance. Cash ISAs generally offer more generous interest rates than equivalent non-ISA accounts.
Look out for the usual terms and conditions related to interest rates; there may be minimum withdrawal amounts or deposit requirements.
Please note: HM Treasury regularly reviews rules relating to ISAs, and they are subject to frequent amendments.