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ISAs - the basics

We've answered some common questions about ISAs to help you make the most of your money.

What does ISA stand for?

ISA stands for Individual Savings Account and is a tax efficient way to save or invest. Each tax year you get an annual ISA allowance which is the maximum amount you can save or invest in an ISA.

What types of ISA are available?

There are 2 types of ISA:
  1. A Cash ISA generally consists of a bank or building society savings account, with the only difference being that any interest earned is free of tax. Just like standard savings accounts there are several types of Cash ISAs available including instant access and fixed term accounts.
  2. A Stocks and Shares ISA is a tax efficient way of investing your money in anything from funds and individual shares to government and corporate bonds.

Tax benefits may change in the future. Unlike a Cash ISA, the value of a Stocks and Shares ISA can go down as well as up and you could get back less than you invest.

How much money can I put in an ISA?

The total ISA allowance for this tax year (2017/18) is £20,000. You can put your full allowance in a Cash ISA, a Stocks and Shares ISA, or any combination of the two.

Who can open an ISA?

Any UK resident can open a Stocks and Shares ISA but you have to be aged 18 or over, and aged 16 or over to open a Cash ISA

How many ISAs can I have?

You can subscribe to one Cash ISA and one Stocks and Shares ISA per tax year.

When does the tax year end?

The tax year runs from the 6 April through to midnight on the 5 April the following year.

What are the tax advantages?

An ISA offers a number of tax advantages. A Cash ISA lets you earn interest on your savings without paying tax on that interest. With a Stocks and Shares ISA you don't have to declare your investments to HM Revenue & Customs and any gains you make are exempt from Capital Gains Tax.

Also, you won't need to pay income tax on any investment income you receive – which is why you'll often hear them described as being 'tax efficient'.

The income that you receive could be in the form of interest or dividends. A dividend represents a share of the profits that a shareholder receives in return for investing in a company's shares.

Why consider investing in a Stocks and Shares ISA?

While there are no guarantees, investments have the potential to offer higher returns than cash over the longer term. A Stocks and Shares ISA should therefore be seen as an investment for at least 5 years.

See how much your investments might be worth

Try our ISA calculator to see how much a Stocks and Shares ISA might be worth in the future.