What is an ISA

With over 11 million adult ISAs subscribed to in 2016-2017, it’s clear that ISAs are popular with UK savers and investors. We take a closer look at how they work and how to choose the right one for you.


ISAs – or Individual Savings Accounts – are a form of tax-efficient personal ‘wrapper’ which allow you to save or invest up to a certain amount each year without paying tax on any personal interest or capital gains you may earn.[1]

Each financial year (April-April) the Government sets an annual limit for how much can be placed in an ISA, which can’t be rolled over into the next year. For 2018/19 this stands at £20,000.

How do ISAs work?

There are two main types of ISA: cash and stocks and shares. You can have both types and divide your annual allowance between them however you prefer.

Cash ISAs work in a very similar way to a regular savings account. Interest rates will vary from provider to provider and you can choose between instant access or fixed-rate over a set period, depending on your needs.

Stocks and shares ISAs are a bit different. They basically act as a wrapper for various investments, including funds, bonds and individual shares. They can offer better returns than cash ISAs, but also come with a greater element of risk. The value of your investments can go down as well as up.

Who can get an ISA?

Cash ISAs are available to all UK adults over the age of 16 – although some products may only be available to over-18s – and stocks and shares ISAs are open to over-18s. Everyone has the same limit. Joint ISAs aren’t available – they can only be held in a single name.

Withdrawals and transfers

A number of changes have been brought in, in recent years, to make ISAs more flexible. One of the biggest shifts, made in 2016, means that you can now make withdrawals from cash ISAs and then replace the same sum within the tax year, without it affecting your overall limit. It is worth noting that not all providers offer this, so check the ts and cs before choosing an account.

It’s also possible to transfer both cash and stocks and shares ISAs, however you may be charged a penalty.

What other types of ISA might I have heard of?

As well as cash and stocks and shares ISAs, there are a few other variations to choose from:

Junior ISAs are aimed at under 18s and can be set up on their behalf by their parents, or by the child themselves if they are 16 or 17. They have a lower annual limit than an adult ISA at £4,260 for the 2018/19 tax year.[2]

Lifetime ISAs are designed to help people save up for either a first house deposit or retirement. You can save up to £4,000 a year under current limits and will receive a 25% bonus every year you make a deposit.[3]

Help to Buy ISAs are specifically aimed at helping first-time buyers save up a deposit towards a home. The Government offers a 25% bonus on amounts saved over £1,600, up to a maximum bonus of £3,000. The limit for 2018/19 is £3,400.

You may also have heard about Flexible ISAs. These are cash or stocks and shares ISAs which allow you to add money, withdraw it and then re-add the same amount without using up more of your annual allowance.

Choosing the right ISA for you

Which ISA – or combination of ISAs – is right for you will depend on your financial needs and attitude towards risk.

If you want some low-risk, short-term savings, a cash ISA might be the right choice, while if you are happy to tie your money up for a longer period and don’t mind taking a risk in return for potentially bigger rewards, you might want to think about a stocks and shares ISA.