An individual savings account (ISA), is a savings account with a tax-free wrapper. This means any interest earned is not liable for tax. ISAs come with a maximum amount you can invest each tax-year, also known as your ISA allowance (see below).
The ISA allowance is the maximum amount you can save into an ISA within that tax year. This is set by the Government and is currently £20,000 for the 2020/2021 tax year. You can save into a cash ISA, a stocks and shares ISA, an Innovative Finance ISA and a Lifetime ISA all in the same tax year. However, you cannot save into more than one of each type in the same tax year.
Read more about the ISA allowance.
This is the organisation who is holding your ISA funds. This can be a bank, building society, credit union, friendly society, stockbroker, peer-to-peer lender, crowdfunding company, as well as other financial institutions.
ISA transfers in
Savers can transfer their ISA pot to a new ISA if the product accepts a transfer in from that type of ISA.
ISA transfers out
Savers can transfer their ISA pot out to switch it to a new ISA provider. This is instead of making a withdrawal and maintains the ISA pot’s tax-free status.
A Junior ISA is a tax-free savings account designed for those aged under 18. The maximum deposit is currently £9,000 for the 2020/2021 tax year.
Lifetime ISA (LISA)
This is an ISA specifically to save for a deposit for a first home or for retirement. There are set limits on how much you can pay into a LISA and you must be aged 18 to 39 to open one. A Government bonus of 25% of your savings is added, up to £1,000, each year.
Personal Savings Allowance (PSA)
PSA is the amount of savings interest you can earn before needing to pay any tax. Basic rate taxpayers can earn £1,000 in interest while higher rate taxpayers can only earn £500 before needing to pay tax. Those at the 45% tax level must pay tax on all the interest they earn from savings.