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What is an ISA?

We know that saving is important, but the world of ISAs can be confusing. Here we break down the ins and outs of ISAs, to help you work out if it’s the best type of savings account for you.

What is an ISA?

Let’s start at the beginning. The main difference between an ISA, or an Individual Savings Account, and any other savings account is that with an ISA the interest that you earn is tax free. 

What are the advantages and disadvantages of an ISA? 

It depends on your individual circumstances, but the benefits include tax-free interest. ISAs are also portable, so you can transfer them to different providers to get the best interest rates. 

One disadvantage is that there is an annual limit to how much you can deposit – you get a tax-free allowance of up to £20,000 every tax year. If you put more money than this in your ISA in a year, you will pay tax on the interest earned on any additional funds – but remember, because the allowance resets annually, you can add another £20k the next year! 

What is tax-free interest?

The interest you earn on your ISA savings will not be taxed, so it’s all yours to keep. 

Good to know: interest you earn on your ISA doesn't count towards your Personal Savings Allowance (PSA), so it’s a great way to earn extra tax-free interest. 

What is a Personal Savings Allowance? 

Your Personal Savings Allowance (or PSA) tells you how much interest you can earn tax-free. It depends on what rate of income tax you pay: 

Income Tax How much interest you can earn without paying tax
Basic Rate Taxpayer (20%) £1,000
Higher Rate Taxpayer (40%) £500
Additional Rate Taxpayer (45%) £0

You can find more details on your Personal Savings Allowance and savings interest on the UK Government website. 

What are the different types of ISA?

There are four types of ISA to choose from. At Metro Bank, we only offer Cash ISAs at the moment, but here’s a breakdown of them all:   

Cash ISAs

You have two options when it comes to Cash ISAs: Instant Access or Fixed Rate. You’ll earn tax-free interest with either, but they work slightly differently – so it’s important to pick the one that suits what you need.

With an Instant Access Cash ISA you can get to your savings as often as you like, but the interest rate is variable, which means it could change throughout the year. With a Fixed Rate, you pick the length of time you want to have your ISA for, and you’ll earn a higher rate of interest the longer you choose to save. But you can’t dip into your savings until the term you’ve chosen has ended.

Stocks and Shares ISAs

A Stocks and Shares ISA is when you put your money into an account that the company or bank then invests on your behalf. It’s important to remember that investing always comes with a risk that you could lose money, so make sure it’s the right choice for you. 

Lifetime ISAs

A Lifetime ISA is an account that’ll help you save either for your first home, or for retirement. When you take out a Lifetime ISA the government will give you a bonus of 25% of what you pay in (up to a set limit) every tax year. 

Innovative Finance ISAs

An Innovative Finance ISA is an account that includes peer-to-peer loans, or investments you make in a business – but similarly to the Stocks and Shares ISA, investing always comes with a risk that you could lose money.

How many ISAs can you have? 

You are allowed to subscribe to multiple cash ISAs in a tax year from 06 April 2024 across all ISA providers, but will be able to subscribe to only one Metro Bank ISA in a tax year. You can save or invest up to £20,000 in total the 2024/25 tax year into a combination of the following ISA types; Cash ISAs, Stocks and Shares ISAs, one Lifetime ISA and Innovative Finance ISAs.

Can you withdraw from an ISA? 

You can withdraw from a Cash ISA whenever you need to, but replacing any withdrawn funds may impact your tax-free allowance. If you have a Metro Bank Fixed Rate Cash ISA, you’ll lose interest if you choose to withdraw money before your agreed term has come to an end – usually 180 days' worth. To keep your tax-free allowance, you can use the ISA transfer service – this means getting in touch with the new ISA provider you’d like to save with and completing an ISA transfer form. If you’d like to transfer your ISA to Metro Bank, you can do this by giving us a call on 0345 0808 500 or visiting one of our stores. 

Metro Bank ISAs

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Instant Access Cash ISA 

  • Access your money anytime 
  • Fee-free withdrawals
  • Tax-free interest on up to £20,000 every tax year 

With our Instant Access Cash ISA you can earn tax-free interest on your savings and access them whenever you need to. 

Keep your money stashed away all year to maximise your earnings, or take some out and put some back in when you need toit's your choice. 

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Fixed Rate Cash ISA 

  • A higher interest rate  
  • Choice of terms of up to five years  
  • Tax-free interest on up to £20,000 every tax year 

With a Fixed Rate, you get exactly thata rate that won’t change for the term you’ve chosen. Pick from 1, 2, 3, or 5 years, and you’ll earn a higher rate of interest the longer you choose to save for – but you can’t withdraw money from your savings during the fixed period 

Ready to open your ISA with us? 
Visit a store, or open an Instant Access Cash ISA in our App.