What is an ISA? The rules and how to use your allowance.

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 come with some valuable tax benefits and could help you build your savings over time. 

Understanding the rules, limits, and how ISAs work can help you make good decisions about how to save.

How does an 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.  
• Different options: Choose fixed or variable rates, with withdrawal options to suit your needs.  
• Transferable: You can move your savings between providers, although some restrictions may apply.
• Multiple ISAs: You can open more than one ISA, as long as your total contributions stay within your annual allowance. 
• Some providers let you pay into more than one cash ISA each year; although with Principality you can only pay into one cash ISA each tax year.

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: Your money is invested in assets like shares. Your returns depend on market performance. 
• Lifetime ISAs: ISAs designed to help you save for your first home or retirement. 
• Innovative Finance ISAs: Invest in peer-to-peer lending, which carries a higher level of risk.

Choosing between fixed rate and variable rate cash ISAs

At Principality, we offer cash ISAs, which come in two types. Choosing the right option for you depends on things like how long you're saving for and how much access you need to your money.

Fixed rate cash ISAs:  

Fixed rate cash ISAs	Helpful if you...
Earn a fixed interest rate for a set time.	Want certainty over the interest you'll earn.
No withdrawals allowed during the term.	Are saving money you won't need access to for a while.
Early closure or transfer may lead to a loss of interest.	Are comfortable locking your money away in return for the fixed rate.

Fixed rate cash ISAs can work well for your medium-term goals, where certainty over your interest rate is important to you.

Variable rate cash ISAs:  

Variable rate cash ISAs	Helpful if you...
Your interest rate may go up or down.	Are comfortable with your interest rate changing over time.
You can usually access your money more easily.	Want access to your savings.
Some variable ISAs let you withdraw and replace money in the same tax year without affecting your ISA allowance.	You prefer the option to add, withdraw or move money as your plans change.

You might choose a variable rate cash ISA if you're saving for something without a set timeline; like building an emergency fund. 

ISA rules and allowance explained 

Understanding the rules around ISAs can help you make the most of your tax-free savings.

What is the ISA allowance?

Each year the government sets a maximum amount you can save into ISAs.

• For the 2025/2026 tax year the ISA allowance is £20,000.  
• This allowance applies across all types of ISAs, not per account
• Your allowance resets every tax year (April 6 to April 5)

This means you can spread your £20,000 across different ISAs each tax year; as long as you don't exceed the total allowance.

How many ISAs can you open?

You can open more than one type of ISA. For example, you could hold a cash ISA, a Lifetime ISA, and a Stocks & Shares ISA.

But the rules on paying money in are different.

How many ISAs can you pay into in a tax year?

You can pay into more than one cash ISA per tax year. But you can only pay into one Principality cash ISA  each tax year.

You may be able to pay into other types of ISAs as well; as long as your total contributions stay within the £20,000 allowance.

You can divide your allowance across different types of ISAs, evern if they're with different providers. 

At Principality you can only pay into one cash ISA per tax year.

Can you use more than one provider?

Yes, you can use more than one provider.

Your ISA allowance belongs to you; not any bank or building society you save with. 

This means you can hold ISAs with different providers. As long as the total contributions across all your ISAs stay within your annual allowance.

What happens if you exceed your annual allowance?

If you go over your annual allowance:

• The excess amount will not earn tax-free interest.
• HMRC may contact you to correct the situation.

You should keep track of how much you've paid into your ISAs. Especially if you're using more than one provider.

Accessing your money   

Before you pick an ISA, you should think about how often you'd like to access your savings.

Different ISAs will have different withdrawal rules. With some accounts, taking money out early could mean losing some interest.

At Principality our cash ISA range offers different options. Some of our ISAs may allow unlimited withdrawals while others have limits. 

You should always check the withdrawal terms before committing.

Is an ISA right for you?  

An ISA could suit you if:   

Explore other options if:

 

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