What is an ISA?

An Individual Savings Account (ISA) is a type of savings account that lets you earn interest tax-free. This means you get to keep all the interest you earn, unlike some other savings accounts where tax might apply.  

ISAs were introduced in 1999 to encourage people to save for their future. They come with some valuable tax benefits and could help you build your savings over time.

How does ISA work?  

Each tax year, (from 6th April - 5th April the following year), the government sets a tax-free ISA allowance. For the 2025/2026 tax year, the allowance is £20,000.  

This means you can save up to £20,000 in an ISA without paying tax on the interest you earn. You can choose to deposit a lump sum, or add smaller amounts through the year, depending on the type of ISA you choose. 

What are the benefits of an ISA?  

• Tax free savings: Keep 100% of the interest you earn, without paying tax.  
• Flexible options: Choose fixed or variable rates, with withdrawal options to suit your needs.  
• Transferable: You can move your savings between providers (though some restrictions may apply).
• Multiple ISAs - You can open more than one ISA. Just make sure your total contributions do not go over £20,000 each year across all accounts.

What types of ISAs are there?  

There are four main types of ISAs:  

• Cash ISAs: A tax-free savings account. (This is what we offer at Principality). 
• Stocks & Shares ISAs: Invest your money in things like stocks and bonds. (There’s some risk involved). 
• Lifetime ISAs: Designed to help you save for your first home or retirement. 
• Innovative Finance ISAs: Invest in peer-to-peer lending. (A higher risk option). 

At Principality, we offer cash ISAs, which come in two types:   

Fixed rate cash ISAs:  

• Earn a fixed interest rate for a set time.   
• No withdrawals allowed during the term. 
• Early closure or transfer may lead to a loss of interest.

Variable rate cash ISAs:  

• Your interest rate can change over time.
• You can withdraw and replace money within the same tax year without it affecting your annual ISA allowance.  

Contribution limits explained 

For the 2025/2026 year, you can contribute up to £20,000 across multiple ISAs.  

You can divide your allowance across different types of ISAs, even if they are with different banks or building societies. At Principality you can only pay into one cash ISA per tax year.  

If you go over your annual ISA allowance, you won't be able to keep the excess amount in an ISA and earn interest tax-free. Always check your contributions to stay within the limits.  

Can you access your money?   

This depends on the type of ISA you choose. Before you pick an ISA, you should think about how often you’d like access to your money. Principality cash ISAs offer a range of options. Some of our ISAs offer unlimited withdrawals, while some come with withdrawal limits. 

Is an ISA right for you?  

An ISA could suit you if:   
 

• You’re looking for a tax-efficient way to save.  
• You want to earn tax-free interest without worrying about paying tax on savings.  
• You prefer a long-term savings option with flexible contributions.  

Understanding how ISAs work can help you make a confident choice about how to save for your future.