First things first: ISA stands for ‘Individual Savings Account’. The key difference from an ordinary savings account is that putting your money in an ISA means you know the interest you earn is protected from UK income tax.
A good way to think about an ISA is that it works as a tax-free* ‘wrapper’. That money is ‘wrapped’ away, and the interest you earn is protected from being taxed.
There are four different types of ISA. Each works a little differently, but generally speaking:
*Tax-free is the rate payable where interest is exempt from UK income tax. Your savings balance will be eligible for this tax benefit for so long as it is held in a valid cash ISA account.
The tax treatment of ISAs and the applicable Government rules are subject to change. The benefits of your account for tax purposes will depend on your personal financial circumstances.
The content in this article is for information only and is not advice. All content in this article was accurate on the date of publication shown above.