Opening your first ISA is one of the simplest ways to start saving or investing while paying no tax on the interest, dividends or growth you make. An ISA is simply a tax-free wrapper you hold your savings or investments inside, and every UK adult gets a £20,000 allowance to use each tax year, which resets every April.
This guide walks you through exactly how to open one: who is eligible, what you need, how to choose a provider, and how much you need to start. If you want the full background on how ISAs work and the different types, see our what is an ISA guide.
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How to Open an ISA, Step by Step
Opening an ISA is quick. It is usually done online in 10 to 15 minutes and works much like opening a bank account. Here is the process step by step:
- Pick the type you need. A cash ISA for tax-free saving, a stocks and shares ISA for investing, or a Lifetime ISA if you are saving for a first home or retirement. There is a brief rundown of each below.
- Check you are eligible. You need to be a UK resident (or a Crown employee posted overseas) and aged 18 or over for an adult ISA.
- Get your details ready. Most providers ask for your National Insurance number, photo ID (passport or driving licence) and proof of address.
- Choose a provider. Compare interest rates for a cash ISA, or fees and investment choice for a stocks and shares ISA. Our best stocks and shares ISA round-up walks through the main options.
- Open it and pay in. You can usually start from as little as £1, set up a small regular monthly payment, or pay in a lump sum, up to your £20,000 annual allowance.
With a stocks and shares ISA you can also choose how hands-on to be: DIY (you pick the investments), a robo-adviser (a ready-made portfolio chosen for you), or expert-managed (a professional runs it for a fee).
What are the ISA eligibility requirements?
In terms of eligibility requirements, you need to either be a UK resident or be serving as a Crown employee (or be married to or be in a civil partnership with someone who is).
By Crown employee, I mean either a diplomat, a civil servant, or an armed forces member.
Essentially be a UK citizen to save on complications.
Besides these eligibility requirements, you’ll also need to provide the following:
- Proof of address
- Proof of identity (i.e., a UK driving license or your passport)
- National Insurance number
How Much Do You Need to Start an ISA?
You do not need a big lump sum to open an ISA. Many providers let you start from as little as £1, and most let you set up a small regular monthly payment instead. The only cap is the £20,000 you can pay in across all your ISAs each tax year. Starting small and paying in regularly is often the easiest way to build the habit.
The 5 Types of ISA (In Brief)
There are five main types of ISA. Here is the one-line version, with a full guide for each:
- Cash ISA – a tax-free savings account, the closest thing to a normal savings account.
- Stocks and shares ISA – invest in funds, shares and bonds, with no tax on gains or dividends.
- Lifetime ISA – for a first home or retirement, with a 25% government bonus (£4,000 a year limit).
- Junior ISA – a tax-free account for under-18s (£9,000 a year limit).
- Innovative finance ISA – tax-free returns on peer-to-peer lending, aimed at more experienced investors.
The Help to Buy ISA is closed to new applicants; the Lifetime ISA replaced it. For a full breakdown of how each one works, see our what is an ISA guide.
The Benefits of an ISA
Split your ISA allowance – You don’t have to spend the entirety of your ISA amount on the same kind of investment or saving scheme. Instead, you could split it up over several investment options. For example, you could spend £10,000 on a stocks and shares ISA and your remaining £10,000 on an innovative finance ISA.
Spend your ISA allowance as one lump sum – Instead, you could spend all of your ISA limits on one investment type. This would allow you to receive the maximum in tax-free benefits when investing solely in a stocks and shares ISA, for example.
ISAs are easy to switch – Banks and building societies offer competitive interest rates for ISAs. It’s normally easy to switch ISAs if you find a bank offering you a better investment deal. For example, if you see one bank offering 4% for an easy-access cash ISA while you’re only getting 3% from your current ISA provider, you could switch.
Transfer investment type – Just as it’s easy to switch ISA providers, it’s also easy to alter your investment ISA portfolio. For example, you could switch between a stocks and shares ISA and a cash ISA. They’ve both got the same tax efficiency, so there’s no real difference.
Your partner can inherit your investment ISA – If you pass away before you withdraw your ISA, your partner can inherit your ISA. They can then add it to an account of their own.
The drawbacks of an ISA
You can’t carry over your ISA allowance – If you’ve got an unused allowance, you can’t carry over any remaining allowance to the next tax year. If you don’t use all of your ISA allowances by midnight on the 5th of April, you’ll lose the remaining amount. On the 6th of April – the start of the new tax year – you’ll receive a new limit.
No tax relief – Although opening an ISA account is the most tax-efficient way to invest money, it means you don’t benefit from tax relief. This is where the benefits of SIPPs seem most appealing.
Can’t create a joint-name ISA account – If you and your partner would like to set up a split account, you’ll need to pick an ISA alternative – such as a standard savings account.
What's the Difference Between ISAs and Personal Pensions?
- Pensions are locked away until you’re a certain age, while ISAs can be accessed anytime.
- ISAs are tax-free, while pensions are not.
- You can benefit from tax relief with a pension, but you can’t with an ISA.
What's Changing for ISAs in 2027?
A few changes are due from April 2027 (still subject to consultation). The cash ISA limit is dropping to £12,000 a year for under-65s, although the overall £20,000 ISA allowance stays the same. A new 22% charge will also apply to interest earned on cash left uninvested inside a stocks and shares, Lifetime or innovative finance ISA, so keep investment ISAs invested rather than holding large amounts of cash. You can read the full detail in our what is an ISA guide.
FAQs
Final Thoughts
Opening an ISA is a great way to both save money and profit massively from interest. Don’t pay tax – instead, start an investment fund with a stocks and shares ISA.
Or, find the ISA provider that offers the best rates on cash ISAs (the best ISA for beginners).
Whichever ISA you go for, you’ll be surprised how easy they are to set up and maintain.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
