What’s an ISA?
An ISA is an ‘individual savings account’. You can open one if you’re over 16 (18 for some products, including stocks and shares ISAs) and live in the UK. Any interest you earn on money you put in an ISA is tax-free, so it’s a worthwhile investment to make.
If you’re eligible to open an ISA, there’s a limit to how much money you can put in. This limit changes every financial year; for 2017/2018 the limit is £20,000. You can have more than one ISA, but you can’t go over your allowance in any one financial year.
Standard savings accounts, on the other hand, are liable to tax. If you’re a lower-rate taxpayer, you can earn up to £1,000 interest tax free; any interest you earn after that is subject to tax. For higher-rate taxpayers, the allowance is £500. If you earn £17,000 or less each year, you won’t pay any tax on your savings interest at all.
If you’ve got kids and have parental responsibility, then you can also invest money in a Junior ISA on their behalf. For the 2017/2018 financial year, the limit for a Junior ISA is £4,128.