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What Exactly Is An ISA?

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What Exactly Is An ISA?

Understanding the foundation of Individual Savings Accounts

Individual Savings Accounts, more commonly referred to as ISAs, debuted in 1999 and offer tax incentives to encourage UK residents to save. These savings and investment 'vehicles' offer a variety of options and benefits, but they also come with their share of rules and regulations. 

To ensure you benefit from the full advantages of these accounts, it's important to understand exactly how ISAs work and the rules governing them before you open one.

What is an ISA?

Many financial experts recommend that ISA should be a first port of call to individuals who want to put money into savings or investments. 

These savings vehicles provide more in the way of tax-efficient benefits than most others types of accounts, giving the account holder a greater rate of return on their initial deposit.

There are two types of ISA - cash ISAs and investment ISAs (also known as stocks and shares ISAs). Cash ISAs offer tax-free interest, while investment ISAs offer returns that are exempt from capital gains tax.

Who can contribute to an ISA?

Any UK resident over the age of 16 can open and contribute to an ISA.

However, account holders under 18 are only able to open cash ISAs; stocks and shares ISAs are not available to this age group.

Account holders 18 and older are allowed to open one stocks and shares ISA and one cash ISA each year. As the name suggests, ISAs are individual accounts, which means that joint ownership is not available.

What are the contribution limits?

Because of the tax benefits ISAs provide, the amount you can contribute into an ISA is limited each year.

The 2021-22 Limit is £20,000 per individual.

Can money be withdrawn from an ISA?

Money can be taken from an ISA at any time. However, there can sometimes be drawbacks to doing so. Withdrawing money from an ISA does not change the contribution limits for that year. 

So, if you've invested the full amount allowed in your ISA for the year and then withdraw £1,000, you cannot then put that money back into the ISA during the current taxable year, because you have already reached your contribution limit with your initial deposits.

An ISA can be a sensible choice for savers and investors alike. Whether you're looking for a tax-efficient way to put cash aside for the future, or looking to invest without paying capital gains tax, an ISA may be the perfect option for you.

Read more here: The Comprehensive Guide to ISAs

Oliver Roylance-Smith
Edited by Oliver Roylance-Smith -

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Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

Lifetime ISAs

Save for your first home and retirement

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Junior ISAs

Invest for your child’s future

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Stocks & Shares ISAs

Invest tax-free in stocks and shares 

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Latest News

5 Considerations for Your Next Investment ISA

15th March 2021

You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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