ISAs explained

What is an ISA?

ISA stands for Individual Savings Account.

The main difference between an ISA and any other savings account is that it offers tax-free interest payments, so you could get more for your money.

There is a limit to how much money you can put into an ISA in each tax year, which is called the ‘ISA allowance’. The ISA allowance for the 2019/20 tax year is £20,000.

You can only have one ‘active’ cash ISA every year – this means, for example, that you can’t open multiple ISAs in a single tax year, and benefit from the tax-free savings allowance in every one of these cash ISAs.

You can, however, split your allowance between several cash ISA products. So you could open two or three Nationwide cash ISAs and, as long as you don’t exceed your annual ISA allowance in the total deposits you put in across all of them, you can use them all.

What do I need to understand before opening an ISA?

In deciding if an ISA is the right option for you or if any other savings account might be better, there are two key things to consider:


  1. Your Personal Savings Allowance (PSA)
  2. ISA flexibility

1. Personal Savings Allowance (PSA)

Your PSA is set by the government. It was introduced in April 2016 and means that, depending on the income tax rate you pay, you could earn up to £1,000 in interest in a (non-ISA) account during a tax year without having to pay tax on your interest.

Interest you earn on any ISA you hold doesn’t count towards your PSA because it’s already tax-free.

2. ISA flexibility

ISA flexibility allows you to do more with your ISA. ISAs used to be known as ‘the first place you put money in to, and the last place you took it out from’.

ISA flexibility has changed that. It allows you to take out money from your ISA account and replace that money within the same tax year without eating in to your annual ISA allowance.

Here’s an example to explain this:


  • You open a cash ISA at the start of a tax year and make a deposit in your account, using up some of your ISA allowance for that year.
  • At the start of the following tax year, your annual ISA allowance re-sets.
  • You then take out £100 from your ISA. Later in the same tax year, you pay £100 back in.
  • What you’ve taken out and paid in just takes you back to your start-of-tax-year balance – you haven’t used any of your annual ISA allowance for that year, so you can still save against it for the remainder of the tax year.

Knowing about ISA flexibility could make a difference in deciding whether an ISA or any other (non-ISA) savings account is right for you.

Please note: not all ISA products offer flexibility so check the terms and conditions before applying.

What types of ISA are available with Nationwide?

Cash ISAs

Nationwide offers a wide range of cash ISAs – including accounts where you can access your money at any time, as well as accounts where you can lock away your cash for a fixed term.

Stocks and shares ISA

We also offer a stocks and shares ISA.

The difference is that you choose to put all or some of your money into a range of investments, such as cash, government or corporate bonds, property or stocks and shares.

The 2019/20 tax-year allowance for a stocks and shares ISA is the same as for a cash ISA – £20,000.

Please remember: the value of your investments can go down as well as up, so you may get back less than you originally invested.

Find out about the different types of savings accounts

Savings accounts explained