What is an ISA account?
Importantly, the first thing to note is that an ISA is not just a type of bank account but is a “tax wrapper”. Much like a variety pack of cereal, the variety pack itself would be considered your “ISA Allowance” and the individual boxes would be actual accounts you can open.
ISA stands for Individual Savings Account (which is where a lot of people get confused) and in the tax year 2025/2026 (6 April 2025 - 5 April 2026) you can pay up to £20,000 into various ISAs in your name.
What types of ISA exist?
You can spread your £20,000 allowance (if you are lucky enough to have this much) across the following types of ISA:
Cash ISA (Basically a savings account)
This is the most common ISA in the UK as historically banks have tried to push these to their customers to “protect them from tax” which until recent interest rate hikes hasn’t really been an issue.
Since 2016, interest on bank accounts has become taxable, although only if you earn above £1,000 per tax year (as a basic rate taxpayer) or if you earn above £500 as a higher rate taxpayer.
Therefore, unless you have enough cash in the bank that you’ll be earning above these amount it’s largely redundant and in my opinion a waste of your ISA allowance.
Stocks & Shares ISA (Your money is invested into the stock market)
This is likely the most efficient way to use your ISA allowance as with stocks and shares ISAs you are avoiding potential taxes:
Income tax on any dividends received (outside of an ISA you can earn £500/yr tax-free and that’s it)
Capital Gains tax on any gains made (outside of an ISA you can earn £3k/yr tax-free and that’s it)
If you have considered investing for a while but aren’t sure where to start, you can check out my free investing guide here and can see some of the top ISAs available below.
Lifetime ISA (For first-time buyers or retirement)
If you are planning to buy your first home for less than £450,000 this is well worth considering. You can use £4,000 of your ISA allowance each year to pay into one of these accounts and the Government will give you a 25% bonus up to £1,000 each tax year.
You can also use these to save for retirement, although the benefits are largely the same as a personal pension.
It’s key to ensure that you will use this for either of the above, otherwise you will face a 25% penalty on withdrawing the funds for anything else, which after taking the bonus into account means you will lose 6.25% of the cash you paid in plus the full bonus.
You must be aged 18-39 in order to open one of these accounts. Here are the full terms from the Government.
Innovative Finance ISA (Your money gets lent to those looking to borrow)
These are the least popular types of ISA as they come with a varying degree of risk which is generally higher than investing in stocks and shares, with a lower amount of return.
I am by no means an expert on these, so here is an explanation from Money.co.uk.
How many ISAs can you have?
This has changed as of 6 April 2024. Previously you could only pay into 1 of each ISA type each tax year. So for example, if you had opened a Cash ISA with NatWest, you couldn’t then open another with Lloyds and pay into it until the next tax year!
Since 6 April 2024, you can open as many ISAs as you wish in the tax year and pay into them so long as you do not invest over the £20,000 overall. It might become tricky to track your contributions if paying into lots so I would recommend keeping tabs.
Best ISAs 2025-26
Best-Buy Cash ISAs (If you switch later)
Plum - 5.92% for 3 months, 3.54% afterwards (variable)
This ISA is non-flexible meaning you lose the ISA benefits if you withdraw from the account
This interest rate is available for new customers only and you will want to switch to a new provider 3 months later to avoid a drop in interest rates
Chip - 5.90% for 3 months, 4.32% afterwards (variable)
This ISA is flexible meaning you can withdraw from the ISA without impacting your £20,000 allowance when you pay the same amounts back into the same ISA
This interest rate is available for new customers only and you will want to switch to a new provider 3 months later to avoid a drop in interest rates
Moneybox - 5.67% for 3 months, 4.2% afterwards (variable)
This ISA is flexible meaning you can withdraw from the ISA without impacting your £20,000 allowance when you pay the same amounts back into the same ISA
This interest rate is available for new customers only and you will want to switch to a new provider 3 months later to avoid a drop in interest rates
Trading 212 - 5.60% for 3 months, 4.50% afterwards (variable)
This ISA is flexible meaning you can withdraw from the ISA without impacting your £20,000 allowance when you pay the same amounts back into the same ISA
This interest rate is available for new customers only and you will want to switch to a new provider 3 months later to avoid a drop in interest rates
You can also get your hands on a free share worth up to £100 if you open a Stocks & Shares ISA with them and deposit just £1
Best-Buy Cash ISAs (No need to switch later)
Tembo - 4.80% (variable) + £15 - £250 for newbies
This ISA is non-flexible meaning you lose the ISA benefits if you withdraw from the account
The cash bonus forms part of a referral scheme available for people who use my link, most will get £15 but is available to all who deposit £500+ as new customers
Best-Buy Fixed Rate Cash ISAs
With uncertainties in the market, you may wish to lock-in interest rates for a certain period, if this is you then here are the best options right now:
1 Year Fix - UBL UK - 4.53%
2 Year Fix - Furness Building Society - 4.45%
3 Year Fix - UBL UK - 4.41%
5 Year Fix - Nottingham Building Society - 4.3%
Cash Lifetime ISA Best-Buys
Similar to Cash ISAs, there is a lot of fierce competition from Lifetime ISA providers, but these are the best rates you can get RIGHT NOW:
Moneybox - 4.7% for 1 year, 3.55% afterwards (variable)
You can only pay into one Lifetime ISA per tax year and any withdrawals not for the purpose of purchasing your first home or retirement are subject to a 25% penalty equivalent to 6.25% less than you paid in
If you are an existing Moneybox customer, it is worth checking your current rate as you are able to transfer your Lifetime ISA out if better rates are available elsewhere
Tembo - 4.6% (variable) for all customers + £15 - £250 bonus
You can only pay into one Lifetime ISA per tax year and any withdrawals not for the purpose of purchasing your first home or retirement are subject to a 25% penalty equivalent to 6.25% less than you paid in
The cash bonus forms part of a referral scheme available for people who use my link, most will get £15 but is available to all who deposit £500+ as new customers
Stocks & Shares ISAs
Investment accounts are a lot more complicated to compare as there are so many different contributing factors, however these are the accounts I use and why:
Stocks & Shares ISA - Trading 212 (my only provider)
I have been using Trading 212 since 2020 but recently consolidated an ISA from Vanguard into this account too following their fee changes
Trading 212 is my platform of choice due to the following:
Zero-commission fees
No account fees
4.6% interest on uninvested cash
I have a partnership contract with Trading 212 but that does not impact my personal choice to use them for my 5-figure Stocks & Shares ISA
Through my partnership, you can get your hands on a free share if you are new to Trading 212, use my code & deposit £1 or more
Stocks & Shares Lifetime ISA - Nutmeg
Alongside my Cash Lifetime ISA with Moneybox, I also have a Stocks & Shares Lifetime ISA (yes, you can have both - but can only pay into 1 LISA per tax year)
I have held this with Nutmeg since 2021 and whilst the fees are higher than I would like, it is my preferred platform for a Lifetime ISA and is a great platform for beginners
Check out my free investing guide here.
*If you use our link to open an account with any investment platform indicated with an asterisk, I may receive a commission in the process. All commissions are re-invested into growing The Bank Engine and we would like to thank you for your support.
**Please note that I am a shareholder in Digital Moneybox Limited (trading as Moneybox) and therefore may inadvertently receive a gain in the long-term if you open an account with them. I am recommending them here as they are hands-down the best Cash Lifetime ISA I have used and would recommend them regardless.