ISA (Individual Savings Account)
Plain-English definition of ISA (Individual Savings Account) — part of our saving glossary.
Definition
An ISA is a UK tax-free savings or investment wrapper. You can contribute up to £20,000 per tax year across Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs combined. All interest, dividends, and capital gains inside an ISA are tax-free.
Worked example
Contributing the full £20,000 annual allowance for five consecutive years builds £100,000 of permanently tax-sheltered capital. At a 6% long-run return, that is roughly £200/month of future tax-free dividend income — forever.
Why it matters
Savings are the foundation of everything else — you cannot invest, buy a home, or weather a redundancy without a cash buffer. Even modest sums build meaningful resilience if they are parked in the right wrapper and left alone.
Common mistake
Leaving large balances in a current account earning 0–1% is one of the most expensive "default decisions" in personal finance. Over a few years, the opportunity cost versus a simple easy-access account regularly runs into the hundreds of pounds per £10,000 held.
Calculators that use this concept
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See also
- AER (Annual Equivalent Rate) — AER is the savings equivalent of APR — the rate of interest you earn on a savings account assuming interest is…
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- Sinking Fund — A sinking fund is a dedicated savings pot for a predictable future expense — Christmas, a car replacement, ann…
- Premium Bonds — A UK government-backed savings product where returns come as tax-free prize wins rather than fixed interest. T…