Please can you explain how ISAs work?

[sorryIdidntmeanto]

Sorry to be so ignorant, but I can't find the answer online, and it turns out none of my friends know the answer.
I get that in an ISA you can save up to £20000 a year tax free. I think that means that normally you would pay tax on any interest over £1000, but not if it is in an ISA. Correct? I know the £20000 limit is reducing soon.
But why do all ISAs only have decent interest rates if fixed for 1, 2, 3 or 5 years? I had one for a year, but when the interest rate returned to lower than my usual savings account, I closed my ISA, as I wanted to get a better rate.
Is this sensible? Should I now open another ISA? Is it better to keep adding new ISA accounts each year, only this seems complicated.
Maybe it depends how much you are saving. I am thinking of putting away about £5k for a year or two (I feel weird that the bank can access my money but I can't), and keeping the rest in an easy access savings account. I don't have £100ks to worry about, so the difference in interest is not that great.
I am looking at ISAs of about 3.5% and savings accounts of about 2.25%. I really want to keep it all across two providers for simplicity.
Thanks for any insights. My main question is around whether it is better to keep ISAs open after they mature or not. Thanks

Like most savings accounts you get a good rate at the start and then it drops.
You typically get better rates for "fixing" rather than a flexible but the downsides are you can only put money in during the first 7-28 days depending on the product and the money is locked away for the duration. This is one aspect where a fixed ISA is better than a regular fixed savings account as a fixed ISA can be closed and there money returned to you, although you would forfeit the interest.

You are capped with how much money you can put into an ISA in any current year, currently £20k but this is due to change, but not how much you can have in an ISA as long as it is always within an ISA.

For example say in year 1 you put £20k in at a decent rate for 1y. At the end of that year the rate drops. You can then open a new ISA at a better rate and ask this bank to move your existing ISA money into this account. You are then also able to add this year's ISA allowance too. For simplicity I'm going to stick with £20k - now you have in the ISA the original £20k, the second lot of £20k and the interest you earned on the first £20k, say £1000 if it was 5%. You ISA now has £41k

If, however, move the money after 1 year back into your current account whilst you figure out what to do with the money. You then open the second ISA account but you can only put it in the same £20k and not the interest you earned on it. You would now have only £20k in the ISA rather than the £41k

After the isa matures, the best thing to do is to transfer that money to a new isa with a rate you like. You can then add an extra £20k (less when the limits change if you're under 65) in the current tax year.

Example to illustrate
In April 2024 you open an isa with 4% interest. It's a 1 year fix with bank A
In 2024 you save £5k in that isa.
In April 2025 the fix ends and the interest on your isa falls to 0.2%

In April 2025 you open a new isa with 4.5% interest. It's a1 year fix with bank B.
You instruct bank B to transfer the balance from your 2024 isa into your new isa. That money never enters your current account. The new isa provider handles everything. This protects your tax free allowance.
In 2025 you save your full tax free allowance of £20k
This isa now contains £25k you've saved during 2024 and 2025 plus interest

What is your reasoning for keeping to these two banks?
These rates are frankly quite rubbish compared to what you can get 4.5+% for fixed or flexible ISAs.

OP - I highly recommend you look at Rebel Finance School's free course on YouTube. They will talk you through saving & passive investing and introduce you to the magic of compounding!