An ISA (Individual Savings Account) is a type of savings account where you don’t have to pay tax on the interest or returns your savings earn. We’ve broken down some of the key things you need to know about how ISAs work in this handy guide.
How ISAs differ from other savings accounts
When you save money in a traditional savings account, you may have to pay tax on the interest you receive, depending on how much interest you earn, your income and your tax band. With an ISA, any returns you earn are free from UK Income Tax and Capital Gains Tax. It’s worth bearing in mind that your tax band and how much you’re saving could mean you won’t need to pay tax on the returns you get from a traditional savings account anyway. Cash ISA interest rates also vary between products and providers.
The other key difference from traditional savings accounts is that ISAs come with an annual limit on how much you can put in each tax year, which is set by the government. This is known as your ISA allowance. We’ll cover this in more detail later.
The different types of ISA
Cash ISAs
Cash ISAs are in many ways similar to other savings accounts, but you won’t pay tax on the interest you earn. They aren’t subject to the risks of investing in stocks and shares, because the money you put in can’t go down. It’s worth considering that inflation can reduce the true value of your cash savings over time.
Variable rate cash ISAs, typically easy or instant access, give you a variable interest rate which your bank or savings provider can change at any time. They allow you to withdraw your money whenever you choose.
Fixed rate cash ISAs give you an interest rate which stays the same over a set period (typically 1, 2, 3, 4 or 5 years ). You usually can’t withdraw money during the fixed term without penalty, unless the product rules allow it. For example, you might be allowed to make limited withdrawals without penalty.
NS&I offer a cash ISA with a variable interest rate called a Direct ISA.
Stocks and shares ISAs
With a stocks and shares ISA, your money is invested in the stock market rather than held in cash. You put money into an account, the provider buys funds or shares for you, and the returns on those funds or shares are tax-free. The value of your investments can fall as well as rise, and you may get back less than you put in.
While a stocks and shares ISA isn’t a fixed-term ISA, it’s generally considered a longer-term investment than a cash ISA.
Lifetime ISAs
A Lifetime ISA (LISA) is designed to either help you buy your first home or save for later life. You can only open one if you’re between 18 and 39 years old, but you can continue to pay into the account until you turn 50.
The maximum contribution is £4,000 per tax year. The Government will add an extra 25% on top – up to a maximum bonus of £1,000 a year.
Your Lifetime ISA must be open for at least a year before you can withdraw your money to buy your first home (as long as the purchase price isn’t over £450,000). Alternatively, you can choose to leave the money in your Lifetime ISA and withdraw it when you’re aged 60 or over.
You can’t use the savings for anything else until you’re 60. If you do, or if you take money out early, then you’ll be charged 25% of the amount you withdraw, so you could get back less than you originally saved.
Learn more about Lifetime ISAs
Junior ISAs
Junior ISAs are tax-free savings accounts that let you invest up to £9,000 a year for a child under 18. There are two types: cash and stocks and shares.
A parent or guardian manages a Junior ISA for a child while they’re under 16. Once the child reaches 16, they can choose to manage their own account, or the parent or guardian can continue to manage it for them until they turn 18. The money belongs to the child and can’t be withdrawn by anyone else. The child can’t access their money until they turn 18.
You can split the Junior ISA allowance however you want between a cash Junior ISA and a stocks and shares Junior ISA. NS&I’s Junior ISA is a cash ISA. We don’t offer a stocks and shares Junior ISA.
What is the annual ISA allowance?
The ISA allowance for the current 2026/27 tax year (which ends on 5 April 2027) is £20,000. You can save this amount in one account or split the allowance across different types of ISAs, such as a cash ISA and a stocks and shares ISA, as long as the total isn’t more than £20,000.
But from 6 April 2027, the start of the 2027/28 tax year, the cash ISA allowance for those aged under 65 will be reduced to £12,000 a year. This won’t have any impact on savings you’ve already contributed to a cash ISA.
If you’re aged 65 or over, then there’s no change to your ISA allowance. If you’re turning 65 part-way through the 2027/28 tax year, the new rules on maximum contributions will be clarified after an industry consultation in 2026.
We’ve broken it down for you in the table below:
| 2026/27 Tax Year | 2027/28 Tax Year | |
|---|---|---|
| Overall ISA allowance | £20,000 | £20,000 |
| Cash ISA allowance (under 65s) | Up to £20,000 | Capped at £12,000 |
| Cash ISA allowance (aged 65 and over) | Up to £20,000 | Up to £20,000 |
| Stocks and shares ISA allowance | Up to £20,000 | Up to £20,000 |
| Junior ISA allowance | £9,000 | £9,000 |
You can’t carry over unused ISA allowance into the next tax year and your allowance resets every 6 April.
Flexible and non-flexible ISAs
A flexible ISA is a type of ISA – it can be cash or a stocks and shares ISA – that allows you to withdraw money and pay it back in again within the same tax year without it affecting your ISA allowance.
An ISA that is not flexible will count every deposit made as part of your ISA allowance. For example, if you deposit £3,000, withdraw it, and then pay it back in again, you will have used £6,000 of your ISA allowance.
NS&I does not offer a flexible ISA.
Can I open more than one ISA?
You can open as many different adult ISA accounts as you like, as long as you keep within the ISA allowance rules. The Lifetime ISA is the exception – you can only pay into one per tax year.
For example, in the 2026/27 tax year, you could save £5,000 in one cash ISA, £4,000 in another cash ISA, £7,000 in a stocks and shares ISA and £4,000 in a Lifetime ISA. This would bring your overall total to the maximum of £20,000.
For Junior ISAs, a child under 18 can split their £9,000 allowance between a cash and a stocks and shares Junior ISA, or can keep it all in one type.
Saving with NS&I
NS&I is the UK government savings bank. We believe that everyone should be able to save confidently for what matters to them.
If you’d like to start exploring cash ISAs, take a look at our Direct ISA.
And if you’re thinking about putting something aside for a child’s future, you can find out more about our Junior ISA.
