How do ISAs work

[FigandHoney]

Ok. This is quite an embarrassing question but how exactly do ISAs work.
Specifically what happens at the end of the tax year / when they mature.
Say for instance you used the full 20k ISA allowance. At the end of the financial year, can you put that 20k plus the interest earned on it plus additional savings into a new ISA. So by maxing it out could you theoretically have 40k plus the interest from the previous year in an ISA account.
Or does that interest and any other savings go into a different savings account

Ooo, can I jump in here ? I need to learn about them too.

ISAs can either be cash ISAs or stocks & shares ISA. In a tax year you can invest up to £20k in an ISA. You could split these between the different types but you can'tput into more than one Cash ISA at a time,

Cash ISAs can be variable rate or fixed. So yes if you had a variable rate ISA you can put £20k into it year on year and earn compound interest on that. A fixed term one is a fixed amount (up to £20k) for a fixed term at a fixed rate. At the end of the term the provider normally moves that money into a cash isa for you where you could keep it or take of out and move it elsewhere.

If you move money between ISAs at different banks you need to use the proper ISA transfer process. If you don't then it'll count as your allowance in that tax year.

Yes, you can put in up to £20k per financial year and once it's in an ISA, it keeps paying interest tax free. So you could accrue tens of thousands of pounds in ISAs, over a number of years.

You can transfer money in an ISA into another ISA and it will keep the tax-free status. IMPORTANT NOTE: you must 'transfer' money from one to the other. DO NOT 'withdraw' the money or it will lose its ISA status.

AIUI ISA is like a wrapper.

You have on wrapper per tax year into which you can put apprx £20k.

Once it's in its wrapper you can move it from (say) cash to shares.

At the end of the financial year, can you put that 20k plus the interest earned on it plus additional savings into a new ISA.

A cash ISA is basically a savings account where any interest earned is tax free. You don't necessarily need to close the account at the end of each year. You could put in 20k one year and another 20k the next year and get the benefit of compound interest.

And there's a rule about transferring money between (cash) ISAs in the financial year you put the original money into the ISA. So if you put money in an instant access ISA now, and want to transfer it to a different ISA account within the same tax year, I think you have to transfer the whole amount (never done it but I've seen the instructions on forms). Whereas if you put the money in now, and transfer it to a different account next financial year, you can transfer all or part of it.

There's a confusing declaration on the form when opening a new ISA - you have to state whether the money forms the current year's subscription, ie whether it's 'new' money you're putting into the ISA in this financial year. It's rather disconcerting when you're opening a new ISA but transferring previous years' money. I used to double-check with the building society and they always said you only say Yes to that statement if it's 'new' money you're putting in, not money already in ISAs from previous years.

We have had several isas over the years. As others have said all interest is tax free, so. We ended up at retirement with about half as much in isas as we have in our pensions, so while pension values can drop depending on the stock market, cash isas can be fixed, so you know where you are.We have found them really good, and stress free. We transfered a wodge of them into Stocks and shares isas which was great until Putin buggered things up and they plummeted, so back into cash isas. If interest rates are peaking, now is a good time to put money into a cash isa. You can get over 5% and if you can tie it up for a few years you should beat inflation (assuming it drops). We had a business that made most of its profit over Christmas, so we would get the bills paid in January, then put any surplus, up to £20k into isas before the end of the tax year in April.