Money sitting in a normal current account is quietly losing value. An ISA is a tax-free wrapper that lets it grow instead, and you get £20,000 of space every single year.
- You can put up to £20,000 a year into ISAs. Unused allowance vanishes on 5 April.
- Cash ISA = safe, slow. Stocks & Shares ISA = bumpy, but historically far better over 5+ years.
- Everything inside is tax-free: no tax on interest, dividends or gains, ever.
Figures for the 2026/27 tax year · last checked 2026-10-07
What an ISA actually is
An ISA (Individual Savings Account) isn't an investment. It's a wrapper, a box with a "no tax" sticker on it. What you put inside the box decides how your money grows.
Every UK resident aged 18+ gets a £20,000 allowance each tax year (6 April to 5 April). You can split it across different ISA types however you like, and since 2024 you can even open more than one ISA of the same type in a year.
Miss a year? That allowance is gone for good. It doesn't roll over.
Cash ISA vs Stocks & Shares ISA
| Cash ISA | Stocks & Shares ISA | |
|---|---|---|
| What's inside | Savings, earning interest | Funds, shares, bonds |
| Can it go down? | No (protected up to £120k per bank by the FSCS) | Yes, sometimes sharply |
| Best for | Emergency fund, money needed within ~5 years | Long-term goals, 5+ years away |
| Typical long-run return | Roughly the Bank of England base rate | Historically higher, with bigger swings |
The simple rule
Money you might need soon → Cash ISA (or an easy-access savings account).
Money you won't touch for 5+ years → Stocks & Shares ISA, usually in a low-cost global index fund.
Why the wrapper matters over time
Small, regular amounts add up far more than most people expect, because growth earns its own growth. Here's £200 a month over 30 years:
- Stocks & Shares ISA (5%)
- £166,000
- Cash ISA (3%)
- £117,000
- Total you paid in
- £72,000
Illustration only. Growth rates are assumed, nominal (before inflation) and not guaranteed. Stocks & Shares can fall as well as rise. Everything inside an ISA is tax-free.
Do I even need a Cash ISA?
Maybe not yet. Most people already get tax-free interest through the Personal Savings Allowance: £1,000 of interest a year for basic-rate taxpayers, £500 for higher-rate. If your savings are modest, a normal savings account paying a better rate can beat a Cash ISA.
The ISA wins once your interest would push past that allowance, or if you'd rather never think about it again.
Change coming in April 2027: if you're under 65, only £12,000 of your £20,000 can go into Cash ISAs. The other £8,000 will have to go into investment-type ISAs if you want to use it. The overall £20k stays the same.
Don't panic-sell. A Stocks & Shares ISA will drop in some years. The people who do worst are the ones who sell during the drop and miss the recovery.