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ISAs – your ultimate guide to powerful tax-free savings

ISAs have never been more varied, incentivised and generous. As a result, the world of ISAs is more complex and confusing than ever before. But it doesn’t need to be. This clear, simple and comprehensive guide will put you amongst those that know how to harness their tax-efficient power and propel you towards your financial goals.

First, we have dedicated pages for each ISA type below, which covers each one in greater detail. So, if you know which one you’re aiming for, these links will take you directly to where you need to go.

And if you simply want a quick comparison to work out which ISA is right for you, scroll down to the end or use the Contents tab below.

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

What is an ISA?

An ISA is an Individual Savings Account where the interest and earnings are tax-free. There are five main types of ISA available to UK residents. Four are for adults, plus a Junior ISA specifically for children.

Here’s what you need to know:

  • ISA = Individual Savings Account
  • You must be:
    • 16 or over for a cash ISA
    • 18 or over for a stocks and shares or innovative finance ISA
    • 18 or over but under 40 to open a Lifetime ISA
    • Under 18 for a Junior ISA
    • Resident in the UK
    • If you live outside the UK, you must be a crown servant (diplomatic or overseas civil servant), their spouse or civil partner
  • All interest and earnings are tax-free

Important things to know

There are some important nuances you need to know to stay on the right side of the tax man.

  • In tax years 2021-22 and 2022-2023, you can save a maximum of £20,000 across all of your ISAs
  • No limit on the quantity of ISAs you can have, but you……
  • Can only open one of each type of ISA per year (eg, you can’t open two Cash ISAs in the same year, but you can open one Cash ISA and one Stocks &Shares ISA).
  • May also only pay into one of each type of ISA in a single tax year (eg, you may have two Cash ISAs, but you can only pay into one of these each year).
  • But you can pay into different ISA types in a single tax year (eg, pay into both a Cash ISA and a Stocks & Shares ISA).


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How many types of ISA are avaliable in the UK?

There are five types of ISA in the UK; four for adults and one for juniors.

There are big differences between them, each having its own advantages, rules and restrictions. We’ll get to these in more detail later, including why you might pick one over the other.


Many people have just the one ISA that fits their savings goal. Others though might have several, of different types, for various purposes. Few people have opened all five types of accounts.

So, you’ll need to decide which are most beneficial & appropriate for you. The pages on the individual accounts will help you work out which are right for your goals. Click on each one to learn more.

Compare ISA types - quick glance

The dedicated pages cover each ISA type in detail.

For a quick glance summary, of the differences, check out the table below.

Table comparing types of ISA

Handy ISA Guides

Hargreaves Lansdown is one of the largest financial and investment institutions in the UK. Handily, they offer a range of useful and FREE guides.

Inflation Guide

ISA Calculator

Guide to Picking Stocks

LISA Factsheet

LISA Guide

How does an ISA work?

Fundamentally, an ISA is a savings and investments ‘wrapper’, where you do not need to pay tax on any interest and profits gained.

Before ISAs, you would complete a tax return and declare any interest or profits made from savings and investments. However, by being tax-free, ISAs remove all that hassle and complexity.

For example, think of an ISA as a chest of draws. You put some money in those draws, and any profit or interest it makes is tax-free. Nice and easy for both you and the taxman, as earnings don’t need to be declared.

Compounding: the snowball effect

And it gets better. The tax saved, therefore, leaves more money in your savings pot. In turn, this bigger pot goes on to potentially make more profit. And the longer you leave your money there, the more powerful this effect becomes. This is known as compounding and becomes incredibly powerful. It’s why ISAs are so attractive to savers and investors.

So, because of this ‘snowball’ effect, ISAs are aimed at medium to long-term savings and investments. Therefore, don’t think of them as regular saving accounts which you can keep dipping in and out of. Most people won’t be touching their ISAs for a minimum of two years.

How much can I pay into my ISA?

The maximum you can pay into all of your ISAs combined in a single tax year is currently £20,000.  This excludes a Junior ISA (JISA). There is also an annual limit of £4,000 on the Lifetime ISA (LISA). 

Overall, this is a very generous limit and has increased significantly over the years.

When the ISA was born in 1999, the annual limit was just £7,000. There is stayed until 2008. From there, it rose steadily over the years. Then 2014 saw a decent hike which increased the limit to £15,000.

After that, it climbed gradually to £20,000 in 2017, where it has remained ever since.

So, if you’re maxing your annual ISA contributions of £20,000 per year, then you are very doing nicely. Go you.

What’s my ISA allowance for 2021/2022?

The 2021/22 ISA allowance is £20,000 across all of your ISAs.

This is a large sum when you consider that in 1999 when Cash ISAs were born, the maximum allowance was just £7,000.

However, whilst new ISAs have been added over time, the allowance has remained at the current limit since 2017/2018.

Remember, though, that some ISAs have specific limits, such as £4,000 with the Lifetime ISA.

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What’s my ISA allowance for 2022/2023?

The ISA allowance for 2022/23 has remained at £20,000 across all of your ISAs.

For the sixth year in a row, the annual ISA limit has remained unchanged.

This has started to attract serious criticism. Inflation is soaring, having averaged 4.6% in 2021 and predicted to break well beyond 5% in 2022. The average inflation since 1989 has been just 3%. Therefore, many argue that it is high-time ISA limits are raised to cater for this.

Is my ISA allowance affected by a Junior ISA?

Taking out a Junior ISA on behalf of a child does not affect your personal ISA allowance.

Fundamentally, children pay tax too and so they have their own allowance.

I’ve not used my ISA allowance this year. What happens to it?

Your ISA allowance cannot be rolled over to the following year.

If you don’t use it, you lose it. Once the tax year ends, that allowance is gone. You can’t carry it over into a new tax year.

How old do I need to be to open an ISA?

Each type of ISA has specific age restrictions. 

Also, the Lifetime ISA has a specific set of age-related rules:

  • Minimum age 18
  • Must open and make the first payment before age 40
  • Can only make contributions until age 50 (government 25% contributions also stop at this point)
  • Cannot access the money before age 60 (unless used to purchase your first home)

During ages 50 and 60, your account will continue to earn interest or investment returns for you.

Can I pay into two ISAs?

You can pay into more than one ISA in a single tax year, but only of different types.

This is important to get right. Nobody wants a knock on the door from HMRC after ten years of thinking everything is good and financial freedom awaits. That would scupper your plans and upset your day.

What you need to know:

  • You can only pay into one type of ISA each tax year
  • You can pay into multiple ISAs if they are of a different typeFor example, you can only pay into one Cash ISA per tax year. But you can pay into both a Cash ISA and a Stocks and Shares ISA in that same year 
  • You can have two or more types of ISA open, but you can only pay into one of them per tax year
  • And you can only open one of each ISA type per tax year

Example: you could open a Stocks & Shares ISA and a LISA in the same tax year and pay into both. However, you can’t open another Stocks & Shares ISA in that same year.

Is an ISA better than a savings account?

Historically, all savings and investment profits were taxed, which is why ISAs were so attractive. Then, in April 2016, the Personal Savings Allowance was born. This was to encourage saving and, if you were a basic-rate taxpayer, you could earn up to £1000 from your savings without being taxed.

As a result, 95% of people no longer had to pay tax on their savings. In fact, it actually undermined the Cash ISA market with its relatively measly interest rates.

In turn, this led to more and more people moving their funds over to a Stocks and Shares ISA. These typically outperform Cash ISAs in the long run and still benefit from tax savings.

That said, if you have reasonable sums saved and don’t like risk, a Cash ISA can still prove a useful tax haven, particularly if you see this as a long-term saving strategy.

Read more: Cash ISAs – is it really all over?

What is a flexible ISA?

A flexible ISA allows you to withdraw money and then replace it without affecting your £20,000 per annum allowance.

ISAs were never meant to be the kind of account where you could dip in and out of. They weren’t designed for if you needed cash for emergency car repairs or any other of life’s minor emergencies.

However, a flexible ISA does allow for such eventualities.

Example: you’ve maxed out £20,000 into an ISA that wasn’t flexible. You then had to withdraw £2,000 for car repair. You can’t now put that £2,000 back in during that same tax year. This is because you had already put in the maximum £20,000.

However, had you done this with a flexible ISA, it would allow you to put that £2,000 back in.

Not all providers enable flexibility in their ISAs, so do check this beforehand.

To prevent dipping into ISA savings or investments, consider having an Emergency Fund. Check these out: The Emergency Fund – how much should you have? and Emergency Savings – where should it be?

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What are the best ISAs to invest in?

The Cash ISA - is it really all over?

Choosing the best ISA depends on your personal circumstances such as its use and your appetite for risk.

The original Cash ISA can best be thought of as a savings account with an agreed interest rate. Of course, this rate may change over time. Or, you can fix it in return for locking your cash away for a set number of years. This offers a fairly stable, though relatively small, return but for little risk.

The advantage a Cash ISA gives you over a standard savings account is that the interest you make is tax-free. However, we now have the personal saving allowance of £1,000 in earnings before paying tax. This means you’d have to have a big sum in your Cash ISA saved to be making more than this in interest each year. Either way, you’re still not investing as such, just saving.

The same is true of a Lifetime Cash ISA or a Junior Cash ISA.

Investing for the long term

However, you can invest inside a Stocks and Shares ISA. Essentially you are investing in the stock market and the ISA simply acts as a tax-free wrapper. Once the money is in your Stocks and Shares ISA, you can invest in what you like. There are thousands of options to choose from and it is much simpler than you may think.

Plus, there are now Stocks and Shares versions of the LISA and JISA. So now, you can invest within these wrappers also.

In general, with investing, you can expect better returns than simply saving cash. But you are accepting a higher level of risk. For this reason, most people invest in a Stocks and Shares ISA for a minimum of five years.

Have a look at our dedicated Stocks & Shares ISA page to find out more.

Can I transfer an ISA?

Transferring an ISA is usually a straightforward process, but there are some things you need to be aware of:

  • You can transfer an ISA between providers if the providers support this
  • Make as many transfers as you like
  • Transfers don’t count as ‘paying in’ (i.e. towards your £20,000 annual limit) if they are from previous tax years
  • Check your provider accepts transfers – not all do
  • Also, check any transferring out penalties from the outgoing provider
  • You can transfer the current year’s value and/or all or part of previous years – there is no cap on the amount transferred
  • Cash ISAs can be transferred to Stocks and Shares ISA and vice versa
  • Always transfer accounts. Never close the account then open the new one as you’ll lose any tax-free advantages you gained

Which ISA is right for me?

Which type of ISA is best for you depends on:

  • the purpose of the savings (eg, house, retirement, other?)
  • your time horizon (two, five or ten plus years?)
  • your appetite for risk
  • the returns you seek

Check out the graphic below to help you decide which one may be appropriate for your circumstances.

Flow chart showing how to choose the right ISA

Ask yourself the following:

  • How long do I want the savings for? If you plan on accessing the funds in less than five years, then, generally speaking, a Cash ISA or Lifetime Cash ISA is a good option. If you’re taking a more long-term view, then a Stocks and Shares ISA is worth considering and could give better results over that time.
  • What is the money for?
    • If you’re saving for a house and are a first-time buyer, then look at the Lifetime ISA as this product is specifically designed for this.
    • If the money is for a child, then the Junior ISA has some attractive tax benefits. Remember though, they get the money at age 18.
    • Planning for retirement? In terms of ISA, the Lifetime ISA has a Pension element to it designed for this. However, there are more efficient ways of saving for retirement for most people. If you’re employed, it’s first worth reviewing and matching your contributions to a work-based pension. Or perhaps consider a SIPP (Self Invested Private Pension) if you like control over your investments or are self-employed.

If you’re thinking of using a Lifetime ISA, have a look at LISA (Lifetime ISA): Better than an ISA or Pension? For a wider overview of pensions, then check out What is a pension and how do they work?

Next Steps

If you’d like to learn more about a specific type of ISA, use the following links to learn more about the pros, cons and maximising its potential.

The tax-saving aspect of ISAs has made them increasingly popular, particularly when combined with the different types on offer. As your fund grows over time, the tax savings can be very powerful. If you don’t need a saving account that you can regularly dip into, but rather something you can ‘set-and-forget’ for at least a few years, then some form of ISA is worth considering.

ISAs can be confusing. Our Free Personal Finance Club is there to help you learn more. We would love to see you there. Join here.

Here’s to Financial Fitness. does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.