ISA vs savings account

ISAs in 2026: should you get one?

If you’re saving or investing in the UK, there’s one question that comes up every year - should I be using an ISA?

As the clock ticks toward the end of the tax year, let’s break down what you need to know if you’re thinking about an ISA in 2026. In this video I’ll cover what ISAs are, why they matter, and how using ISAs can help you grow your wealth over the long‑term.

How do ISAs work?

An ISA - that’s short for individual savings account - is a tax wrapper. Think of it as a protective bubble around your savings or investments that helps to keep them protected from taxes.

Inside that bubble:

• Any interest is tax‑free
• Your dividends are tax‑free
• Your investment growth is also tax‑free
• And crucially, once your money is inside an ISA, it stays protected for life.

The key ISA benefits

There are three big benefits for everyday investors:

1: No tax paperwork

You don’t need to tell HMRC about your ISA income or gains or declare them on your self-assessment tax return.

2: A £20,000 allowance across ISA types

Every tax year, UK adults get an overall £20,000 ISA allowance that can be spread across different types. This allowance runs in line with the UK tax year, so from 6 April one year to 5 April the next.

If you don’t use your full allowance before the end of the tax year, you lose it. This is important if you’re thinking about using the full amount before the ISA deadline.

The payment limit for Lifetime ISAs is £4,000 a year and this is included within the overall £20,000 allowance.

3: Flexibility

There are different types of ISAs for cash savings, investing, or a mix of both.

The flexibility on offer means you can spread your allowance across the different ISA types. You might be investing for the long term to grow your wealth or looking for a home for your short term cash savings.

How ISAs save you tax

First up, income tax.

Let’s say you have £20,000 earning 5% interest.

Inside an ISA:

• You receive £1,000
• You keep £1,000

Now let’s compare that what happens outside of an ISA.

If you’re a basic‑rate taxpayer, you get a tax-free personal savings allowance of up to £1,000. After that, you might lose 20% of the interest to tax.

With no savings allowance left, to take home £1,000, you’d need a rate closer to 6.25%.

If you’re a higher‑rate taxpayer, you get a savings allowance of £500. If you’ve already used that allowance, you’d need an interest rate closer to 8.3% just to end up in the same place.

Now let’s talk about dividends.

Over recent years, the UK dividend tax‑free allowance has been shrinking, and it now stands at just £500 a year.

The basic and upper rates of income tax on dividends above this allowance will also rise by two percentage points from 6 April this year.

That means:

• More investors will pay tax on dividend income
• Even modest portfolios could face annual tax bills

Inside an ISA?

Dividends remain completely tax‑free.

By moving investments into an ISA now, you lock in that protection — even as the rules tighten later.

This is especially relevant for:

• Income‑focused investors
• Those building long‑term portfolios
• Anyone who doesn’t want to deal with dividend tax admin

Capital gains tax

We’ve talked about tax-free income returns, but an ISA also shelters any investments growth from tax, meaning you keep more of your returns.

This is important, as the amount of tax-free gains you can make each year when you sell investments outside of ISAs now stands at just £3,000.

Can you withdraw money from an ISA?

Another big draw of ISAs is that you can get your hands on your money tax-free. You can withdraw cash from Stocks and shares ISAs at any time.

ISA withdrawals are tax-free and there is no limit to how much you can take out.

You can only make withdrawals in cash; this might mean selling some of your investments in an investment ISA.

The AJ Bell ISA is not a flexible ISA, so any money you take out of your ISA cannot be replaced in the same tax year if you’ve already reached your annual ISA allowance for the tax year.

Although some cash ISAs are easy to access, some accounts might limit the number of withdrawals you can make in a year without losing interest.

Fixed rate cash ISAs do not usually allow withdrawals until the end of the fixed term (known as maturity). Accounts that will let you access your cash might require you to close the account and deduct an interest penalty. You should check with your provider what rules will apply.

Lifetime ISA withdrawals work slightly differently. Government rules mean a 25% penalty charge will apply if you withdraw money before age 60, unless you are purchasing your first eligible home. This may mean you get back less from your Lifetime ISA than you put in, especially in the short term.

Cash ISA limits are changing

From April 2027, people under 65 will only be able to pay in up to £12,000 of their overall allowance into Cash ISAs.

Those aged 65 and over will be able continue paying in the full £20,000 annual allowance to Cash ISAs if they want to.

HMRC has also said it will introduce rules to stop under 65s getting around the rules. These could include preventing transfers into cash ISAs from other ISA types, but we don’t have the rules just yet.

Final thoughts: should you get one?

For most of us ISAs aren’t about clever tricks - they’re about keeping more of what you earn.

With tax rates rising and allowances remaining frozen, getting cash and investments wrapped up early can quietly make a big difference over time.

If you’re eligible and haven’t used your allowance yet, it’s worth taking a serious look before the tax year closes and the allowance is lost.