What is an Individual Savings Account?

Individual Savings Accounts (ISAs) offer an attractive tax-free shelter for both Cash and Stocks & Shares investments.

There are two types of ISA:

  • Cash
  • Stocks & Shares

Stocks & Shares ISAs are available to anyone aged 18 or over and Cash ISAs for anyone over 16 years old, for children under the age of 16 the Junior ISA is available.

ISAs serve as a kind of ‘wrapper’ to protect savings and investments from tax.  This means you can invest up to the maximum limits each tax year and pay no personal tax at all on the income or profits received.

With standard bank and building society savings accounts, taxpayers normally have to pay tax on any interest earned on their money.  The tax is deducted from the interest before it is paid out, reducing the amount received.  Interest paid on money held in a Cash ISA is not subject to a deduction for tax.

The situation for a Stocks & Shares ISA is a little more complicated. There is no liability for any tax on the growth of the funds held within the ISA or when you withdraw money, however some funds held within the ISA will receive income in the form of dividends and tax is payable on this within the fund.

When can ISAs be used?

Cash ISAs are useful for tax payers who wish to shelter some of their savings from tax.

Cash ISA investors have access to a wide variety of products including those that allow instant access, have a notice period or indeed fix the interest rate payable for a period of time.

Stocks & Shares ISAs are designed for investors that wish invest in a tax efficient environment with no Income or Capital Gains tax payable on withdrawals from the ISA. They also provide access to a wide range of asset classes, for example, equities, property, bonds and gilts. Due to the volatility of these types of investments compared to Cash, these types of ISA are generally seen as longer term investments.

How it works

There are two types of ISA:

  • Stocks & Shares, in the form of either individual holdings  , or pooled investments such as open-ended investment funds, like Unit Trusts
  • Cash, usually containing a bank or building society savings account

All of your allowance can be invested in Stocks & Shares, or you can split it by investing up to the maximum allowable amount into a Cash ISA and the remainder into a Stocks & Shares ISA, with either the same or a different provider.

As from 6 April 2017, the contribution limits are an overall maximum of £20,000 per annum, all of which can be held in Cash or Stocks & Shares; equally you can mix the two, providing you don’t breach the £20,000 limit.

Subject to certain rules you can also transfer money between existing ISAs.


  • No Income or Capital Gains Tax on any investments in an ISA
  • Income and gains from ISAs do not need to be included in tax returns
  • Money can be withdrawn from an ISA at any time without losing the tax breaks
  • You can transfer your ISA to a different provider without affecting your annual allowance

Next steps

We believe that the tax breaks offered by an ISA make it the cornerstone of your saving and investment planning. We have therefore developed a number of ways to help you invest in an ISA.

Our Best Buy Savings Accounts show the best current Cash ISA rates and are completely independent.

Alternatively if you wish to receive advice on the best route for you and your savings, then please do not hesitate to contact us by completing the enquiry form on this page or by calling us on 0115 933 8433.