An ISA is a savings type of savings account that is exempt from taxation. ISA stands for Individual Savings Account.
Whereas normally, interest earned on savings is taxable, interest earned from ISA accounts is exempt from this.
There are several types of ISA accounts:
This is essentially like a bank account. You can save up to £20,000 in an ISA account and all interest is tax free.
Stocks & Shares ISA
You can buy stocks and shares inside an ISA wrapper. All gains yielded are exempt from taxation. So no capital gains tax is levied on profits made from sale of stock, and likewise dividends from shares inside an ISA wrapper are exempt from dividend tax.
First Time Buyers ISA
New type of ISA intended to help first time buyers save for a home without having to battle taxation.