Understanding ISAs and Saving (Updated 2025)
What is a Cash ISA?
A Cash ISA (Individual Savings Account) is a tax-free savings account available in the UK. Unlike regular savings accounts, the interest earned on a Cash ISA is not subject to income tax, allowing you to maximize your savings over time.
New ISA Allowance Rules (From April 2027)
Important Changes: The government has announced significant changes to ISA rules starting from 6 April 2027:
- Overall ISA Allowance: Remains at £20,000 per tax year across all ISA types.
- Cash ISA Limit (Under 65s): Reduced to £12,000 maximum per tax year.
- Stocks & Shares ISA: The remaining £8,000 (or up to £20,000 if not using Cash ISA) can be invested in Stocks & Shares ISAs.
- Age 65+ Exception: Savers aged 65 or older can continue to use the full £20,000 limit for Cash ISAs.
- Current Rules (Until April 2027): You can still deposit up to £20,000 into Cash ISAs for the 2025/26 and 2026/27 tax years.
How to Split Your £20,000 Allowance
From April 2027, under-65s can split their allowance as follows:
- Up to £12,000 in Cash ISAs (tax-free interest, low risk)
- Minimum £8,000 must go into Stocks & Shares ISAs if using full allowance
- Or use £20,000 entirely in Stocks & Shares ISAs
- Unused allowances do not roll over to the next tax year
- Lifetime ISA (£4,000 limit) and Junior ISA (£9,000 limit) remain unchanged
Understanding Stocks & Shares ISAs
A Stocks & Shares ISA allows you to invest in stocks, bonds, and funds while enjoying tax-free growth on your investments. Key points:
- Potential for higher returns compared to cash (but with investment risk)
- Tax-free dividends and capital gains
- Investments can go down as well as up in value
- Best suited for medium to long-term savings (5+ years)
- Wide range of investment options available
Benefits of Cash ISAs
- Tax-free interest on your savings
- Capital is protected (no investment risk)
- Flexible options, including instant access or fixed-term ISAs
- Ideal for short-term savings and emergency funds
General Saving Tips
- Set a monthly savings goal and stick to it
- Use your full ISA allowance before each tax year ends (5 April)
- Consider your time horizon: cash for short-term, investments for long-term
- Diversify between cash and stocks & shares based on your risk tolerance
- Keep an emergency fund of 3-6 months' expenses in accessible savings
- Review your ISA strategy annually to ensure it matches your goals