An ISA (Individual Savings Account) is a tax free method of saving. Money earned from a bank, in the form of interest, is seen as income and is liable to be taxed. However, with an ISA, the interest you earn is not taxed.Every individual is entitled to a personal ISA allowance, which for the 2017/18 tax year is £20,000.
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There are currently four different types of ISAs; 'cash', 'stocks and shares', 'Help to Buy' and 'IFISA' (Innovative Finance ISA).
With all savings accounts the interest rate is important and just because the ISA is tax free doesn't mean that you shouldn't compare available rates from different providers.
Because they are tax free, there are government restrictions surrounding them. There is a limit to how much you can save; a total of £20,000 during the 2017/18 tax year.
You can choose to put all your annual allowance in one type of ISA, or you can choose to split the investment across the cash and stocks and shares ISAs.
If you fill out a tax return, because of the tax-free nature of ISAs, you do not need to declare any interest on savings, nor any capital gains you have made on your investments.