• 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, held together in what's commonly known as a wrapper.

    Tax benefits may change in the future. 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 (2016/17) is £15,240. 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 an ISA but you have to be aged 18 or over to open a Stocks and Shares ISA, and aged 16 or over to open a Cash ISA. You can't open an ISA with someone else or on behalf of someone else.

    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?

    The key purpose of putting your money in an ISA is that it 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 returns you receive – which is why you'll often hear them described as being 'tax efficient'.

    A dividend represents a share of the profits that a shareholder receives in return for investing in a company's shares. Any dividends paid within an ISA are subject to a 10% tax credit which can't be reclaimed whatever your personal circumstances.

    Why invest in a Stocks and Shares ISA?

    Investments have the potential to offer higher returns than cash over the longer term so a Stocks and Shares ISA should be seen as an investment for at least 5 years.

    See how much your investments might be worth

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

    More on our Stocks and Shares ISA