ISAs explained: making the most of your £20,000 allowance
“ISA” is one of those terms that sounds more complicated than it is. Strip away the jargon and an ISA is simply a wrapper you put around your savings or investments so you never pay tax on what they earn. No tax on the interest, no tax on the growth, no tax on the income. That’s the whole idea.
This is information, not financial advice. It explains how ISAs work. It isn’t a recommendation to buy any particular product or investment. Investments can fall as well as rise, and you may get back less than you put in. If you’re unsure, consider regulated financial advice.
The one number to remember: £20,000
Every tax year (6 April to 5 April) you get an ISA allowance of £20,000. You can put that £20,000 into one type of ISA or split it across several — but £20,000 is the total across them all. The allowance doesn’t roll over: if you don’t use this year’s, it’s gone on 6 April.
Since April 2024 you can also pay into more than one ISA of the same type in a year (say, two different cash ISAs), as long as you stay within the overall £20,000.
The four main types
1. Cash ISA. A savings account where the interest is tax-free. Simple, safe, and your money is protected up to £85,000 per bank by the FSCS. Best for money you might need soon or can’t afford to risk.
2. Stocks & shares ISA. Instead of cash, you hold investments — funds, shares, bonds — and any growth or income is tax-free. The trade-off is risk: the value can go down as well as up. Generally suited to money you’re leaving alone for the long term (five years-plus), not your emergency fund.
3. Lifetime ISA (LISA). For 18–39-year-olds saving for a first home (up to £450,000) or retirement. You can pay in up to £4,000 a year (which counts towards your £20,000), and the government adds a 25% bonus — up to £1,000 a year free. The catch: take the money out for anything other than a first home or after age 60 and you pay a 25% withdrawal charge, which can leave you with less than you put in. Powerful, but read the rules first.
4. Junior ISA (JISA). For under-18s, with a separate allowance of £9,000 per child per year. The money is locked away until they turn 18, then becomes theirs.
The Personal Savings Allowance — why some people don’t need a cash ISA
Here’s the honest bit competitors sometimes gloss over: many people already pay no tax on their savings interest, thanks to the Personal Savings Allowance (PSA):
- Basic-rate (20%) taxpayers: first £1,000 of interest tax-free
- Higher-rate (40%) taxpayers: first £500 tax-free
- Additional-rate (45%) taxpayers: £0
So if you’re a basic-rate taxpayer earning, say, £300 of interest a year, you’re not being taxed on it anyway — and a normal savings account might pay a better rate than the equivalent cash ISA. The ISA’s edge shows up when your interest is near or above your PSA, or when you’re a higher earner. The wrapper is most valuable to the people who’d otherwise be taxed.
The change coming in April 2027
One honest heads-up. At the Autumn Budget 2025, the government announced that from 6 April 2027, the amount under-65s can pay into cash ISAs each year will be cut to £12,000 (people aged 65 and over keep the full £20,000 in cash). The overall £20,000 allowance stays the same — the idea is to nudge younger savers towards stocks & shares ISAs for the balance.
For the current 2026/27 tax year, nothing has changed — you can still put the full £20,000 into a cash ISA if you want to. But if you’re a big cash saver under 65, it’s worth knowing the door narrows next year.
The quick way to decide
Ask yourself two questions. When might I need this money? If it’s soon, cash. If it’s years away and you can stomach ups and downs, stocks & shares may suit. Am I being taxed on my savings? If yes, an ISA saves you real money; if no, compare the ISA rate against a normal account before assuming the ISA wins.
Whatever you choose, the allowance resets each April and won’t wait — so it’s worth a look before the tax year runs down.
Check your take-home pay to see what you can spare →
Last checked 23 July 2026 for the 2026/27 tax year. The £12,000 cash ISA limit for under-65s takes effect 6 April 2027; we’ll update this guide as the detail is confirmed.
Sources
Just so you know: this guide is information and journalism, not financial advice, and we don't recommend specific financial products. Your circumstances are your own — if you need personal advice, speak to a suitably qualified adviser. Information was correct at the "last updated" date above but things change; always check the linked primary sources.