An Individual Savings Account (ISA) is a type of account for savings or investments in which the interest or gains earned are tax-free. The tax-free benefit can significantly enhance the growth of your savings and investments. Although another account might offer a higher rate, the tax advantages of an ISA can make it more valuable. You can invest up to a set limit in an ISA each financial year (April to April); the limit varies depending on the type of ISA, and you can hold more than one, up to a combined maximum of £20,000.

There are four types of ISAs available in the UK:

  • Stocks and Shares ISA: Also known as an investment ISA, this allows you to invest in stocks (shares in companies) and bonds (loans to companies or governments) without paying tax on any profits. These are generally suited to medium- to long-term investments (ideally held for 5–10 years), although the value of investments can fluctuate.
  • Cash ISA: These work like traditional savings accounts, but the interest earned is tax-free. They may offer either fixed or variable interest rates.
  • Junior ISA: Parents or guardians can open a Junior ISA on behalf of their child (who must be under 18 and living in the UK). The account is managed by the parent until the child turns 16, but cash withdrawals are not permitted until the child is 18. A Junior ISA can be either a Cash ISA or a Stocks and Shares ISA, and the annual savings limit is £9,000.
  • Lifetime ISA: Designed to help individuals either get on the property ladder (to buy a home valued up to £450,000) or save for retirement, you can contribute up to £4,000 per tax year to a Lifetime ISA and receive a 25% government bonus. You must be between 18 and 40 years old to open one, and you can make contributions until you turn 50. A Lifetime ISA can hold both cash and investments.