Individual Savings Account (ISA) – What is an ISA?

An Individual Savings Account, usually abbreviated to ISA, is a type of long-term, tax-free savings account.

Looking for more information about ISAs? Our three-part blog series gives you a full overview of the different ISA options available in the UK.

The money you save in an ISA is tax-free, which means that you do not pay Income Tax or Capital Gains Tax on capital gains, income, and interest from an ISA.

Types of Individual Savings Accounts

There are four main types of ISA:

• Cash ISA
• Stocks and shares ISA
• Innovative finance ISA
• Lifetime ISA (LISA)

You’re allowed to open more than one ISA, but each ISA needs to be a different type. For example, you’re allowed one cash ISA and one stocks and shares ISA, but you can’t open two cash ISAs.

There are also Junior ISAs, which are available for children under 18. Although parents and guardians can open and manage Junior ISAs for their children, the money in a Junior ISA belongs to the child.

How much money can I put into an ISA?

The amount of money you can put into an Individual Savings Account is capped each tax year, which runs from April to April. In the 2019-2020 tax year, the cap is £20,000.

If you don't reach the savings cap, the difference does not roll over to the next year. For example, if you only saved £9,000 in 2019-2020, the remaining £11,000 would not be added to your allowance for 2020-2021.

If you have more than one ISA, the savings cap applies to your accounts collectively. This means that you can have up to £20,000 spread across all of your accounts, rather than £20,000 in each account. For example, if you have a cash ISA and a stocks and shares ISA, you can put £16,000 in one account and £4,000 in the other, but you can't put £16,000 in one and £5,000 in another.

Withdrawing money from an Individual Savings Account

If you withdraw money from an ISA, the amount you withdraw might still count towards your £20,000 savings cap, depending on which type of ISA you have.

If you have a flexible ISA, you can withdraw money and then put it back within the same tax year without it affecting your savings allowance. If you don’t have a flexible ISA, any money that you try to put back into your account will count towards your allowance.

For example, you have £18,000 in your ISA and take out £4,000. If you have a flexible ISA, you will be able to put £6,000 into your ISA before the end of the tax year. If you have a non-flexible ISA, you will only be able to put £2,000 into your ISA before the end of the tax year.

How to open an Individual Savings Account

Individual Savings Accounts are usually issued by banks, building societies, credit unions, and other financial institutions. You can transfer your ISAs to other providers at a later date.

To open an ISA, you must:

• Be a resident in the UK (or a ‘Crown servant’ if you don’t live in the UK)
• Have a National Insurance number
• Meet the age requirement for the specific type of ISA (over 16 for cash ISAs, over 18 for stocks and shares ISAs and innovative finance ISAs, between 18 and 40 for Lifetime ISAs)

Unlike many other savings accounts and bank accounts, ISAs can only be held in one person’s name, and it isn’t possible to have joint ISAs.