UK finance jargon - in plain English
A tax-free savings or investment account.
An Individual Savings Account (ISA) lets you save or invest money without paying UK income tax or capital gains tax on the returns. ISAs have an annual contribution limit set by the government. Check current limits before contributing. The main types are Cash ISAs and Stocks and Shares ISAs.
You put £10,000 into a Cash ISA earning 4.5% AER. You earn £450 in interest and pay zero tax on it regardless of your income tax band. In a normal savings account, a higher-rate taxpayer could lose nearly half that to tax.
Numbers simplified for illustration. Actual rates and tax rules may change.
Many people think unused ISA allowance rolls over. It doesn't. ISA allowances reset each tax year, so check current limits and use them before they expire.