ISAs Explained
Get to grips with your tax-free saving and investing options
An Individual Savings Account (ISA) is a way to save or invest money without paying tax on the interest or returns you earn.
Nearly half of UK adults have one – and for good reason. But there are quite a lot of rules about opening and contributing to an ISA and – just to keep you on your toes – these rules can change from year to year.
But don’t let that put you off. This guide explains everything clearly and simply. By the end, you’ll understand:
What an ISA is
Why ISAs are useful
The different types available
How much you can pay in
How to open and transfer one
How to choose the right ISA for you
What is an ISA?
An ISA is a savings or investment account where you don’t pay tax on the money it earns. Normally:
Savings accounts pay interest, and some of that may be taxed.
Investments can grow in value, and that growth may be taxed.
With an ISA:
Interest is tax-free
Investment growth is tax-free
Any dividends (payments from companies) are tax-free
And, because you keep more of what you earn, your money can grow faster over time in an ISA compared to a standard savings account.
Two things can make ISAs feel confusing at first:
There are several different types of ISA.
Even ISAs of the same type can have different features (like fixed rates or easy access).
But they all share one key benefit: tax-free growth.
ISA benefits
ISAs offer tax protection in a few different ways:
No income tax on savings interest or investment income
No capital gains tax (tax on profits when you sell investments for more than you paid)
No tax to pay on dividends (tax on payments companies make to shareholders)
Plus, there’s no need to report the interest or returns within your ISAs in your tax return, which might save you from having to complete one.
Cash ISA vs Stocks & Shares ISA
There are two main types of ISAs that are available to almost anyone: Cash ISAs and Stocks & Shares ISAs. Here’s how they differ:
Cash ISAs
Your money stays as cash
You earn interest
Your money doesn’t go down in value
Suitable for short-term savings or emergency funds
Stocks & Shares ISAs
Your money is invested in markets
Has the potential to grow more over the long term
The value can go up and down
You could get back less than you invest
With a Stocks & Shares ISA, you can:
Invest directly in company shares (or other investments)
Invest in funds - a way for many people to collectively invest in a variety of different shares (and sometimes other investments).
With Zopa’s Stocks & Shares ISA, you can choose between two ready-made funds – Balanced or Bold – each designed for different risk levels and long-term goals.
Other types of ISAs
There are 4 other types of ISAs with more specific purposes and target audiences.
Lifetime ISAs
These are for people saving either to buy a home or for retirement. They have lower contribution limits and stricter age limits than other ISAs, and the government adds a 25% bonus to what you pay in (up to £1,000 per year).
Innovative Finance ISAs
These are for people looking to lend money directly to individuals and businesses, to earn interest.
Junior ISAs
Parents or guardians can open a junior ISA for children under 18. They have an annual limit of £9,000, which doesn’t count towards your own ISA allowance.
Help to Buy ISA
These can’t be opened anymore, but existing account holders can contribute to theirs until November 2029.
ISA allowance and limits
Each tax year (which runs from 6 April to 5 April), adults can pay up to £20,000 into ISAs.
You can:
Put it all into one ISA, or
Split it across different types
For 2025/26:
Total ISA allowance: £20,000
Lifetime ISA limit: £4,000 (this counts towards your £20,000 total)
From April 2026:
Cash ISA limit: £12,000 per tax year
Stocks & Shares ISA limit: £20,000 per tax year
Lifetime ISA limit: £4,000 per tax year
In short: you can mix and match, but you can’t go over £20,000 in total.
Opening an ISA
To open an ISA, you must usually be:
A UK resident
Over 18
Closing an ISA
Closing a Cash ISA or Stocks & Shares ISA is straightforward and you can usually do it all online, transferring any money in it to a different account. Bear in mind that you’ll no longer have tax protection if you move your money into an account that isn’t an ISA.
Choosing the right ISA
You might prefer a Cash ISA if:
You’re saving for something soon
You don’t want your money to go down in value
You might prefer a Stocks & Shares ISA if:
You’re investing for 5+ years.
You’re comfortable with ups and downs.
You want the potential for higher long-term growth.
What to consider
There are hundreds of ISAs on offer, with a range of features that suit different savers and investors. Here are some of the main things to think about.
Cash ISAs
Consider if you’re likely to withdraw
Some Cash ISAs, including Zopa’s, are flexible. That means you can withdraw money from them and repay it in the same tax year – your ISA allowance is based on what you deposit, not what you withdraw, so repaying money into a flexible ISA doesn't eat into it.
Others are inflexible, so money withdrawn can’t be paid in again – and unlike flexible ISAs, your allowance isn't restored either, meaning that portion of your annual allowance is gone for good.
Weigh up accessibility vs interest rate
Some Cash ISAs offer instant, easy access while others require you to give notice for withdrawals, or to lock your money away for a fixed period. Easy access ISAs tend to offer lower interest rates than fixed term.
Zopa Cash ISAs can contain multiple pots – so you could keep some of your money in an Access pot and some in a Fixed Term pot, enjoying the benefits of both.
Stocks & Shares ISAs
Compare DIY vs ready-made
Some providers, including Zopa, offer ready-made funds, so you can start investing quickly, without having to build a portfolio from scratch – though you should still take the time to research which option is right for you before you go ahead and invest.
Consider your experience level
Some Stocks & Shares ISA providers offer a very wide range of investments to choose from, which might suit experienced investors. Others offer a limited range, which can be easier for beginners.
Check how much you’ll pay
Charges can vary: some providers charge a flat monthly fee, while others charge a percentage of your fund value. There can be additional costs for transactions and transfers. Zopa’s Stocks & Shares ISA fee is just 0.54% a year, all in.
Open an ISA with Zopa
Ready to get going with an ISA? Mix and match easy access and fixed term savings in a Cash ISA or start investing with a Stocks & Shares ISA. Start with just £1 or transfer an existing ISA in a few taps.
