ISA interest explained
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.
So, you’ve dipped your toes into the world of ISAs (Individual Savings Accounts) and now want to know what you’ll be getting from your hard-earned cash? Well, you’ve come to the right place! We’re about to find out exactly what ISA interest is all about, as well as answer some of your burning questions.
Do you pay tax on ISA interest?
One of the biggest perks of ISA interest is that it’s tax-free[1] [2]. Yep, you read that right!
Unlike some other investments that can see you waving goodbye to a chunk of interest in taxes, ISA interest can stay in your pocket.
So, is ISA interest tax-free?
Absolutely! We’ll say it louder for the people in the back…
No matter what type of ISA you’re saving with, you get to keep all of the interest you make. Just make sure to stay within your ISA allowance – which is £20,000 for the 2024/25 tax year[3].
What’s an ISA allowance we hear you ask? Check out our article all about this.
Does interest count towards your ISA limit?
Here’s the good news: interest doesn’t eat into your ISA allowance. This limit is just for the money you put into your ISA, not the interest it generates. So you can max out your allowance and still enjoy all the interest that comes your way.
When is ISA interest paid?
It’s the moment we all eagerly await! It’s time to consider when you’ll finally get your hands on your ISA interest. It’s almost as exciting as waiting for your favourite TV show to drop a new season…
This will depend on the type of ISA you have, as well as the provider itself. Some pay interest monthly, others quarterly, and many annually – so it is important to check the terms and conditions of your account.
How is ISA interest calculated?
Your ISA interest may seem to appear in your account like magic, but there are actually some very logical calculations behind the cash you’ll earn. Again, this depends a lot on what type of ISA you have and the rate set by the provider.
For straightforward Cash ISAs[4] it’s usually a percentage of your balance. Simply put, the more money you have in your account, the more interest you’ll earn.
Stocks and shares ISAs can be a bit more complicated, as things like investment performance and market fluctuations need factoring in. But don’t worry, your provider should have a crystal-clear breakdown of how they work their interest magic.
In a nutshell, ISA interest is like the icing on your financial cake – sweet, tax-free[1] [2] and a delightful addition to your savings. Just remember, rules and rates can change so always keep an eye on your provider’s updates.
Not got an ISA yet? Make sure to check out our best ISA rates. Then sit back, relax, and let your account roll in the interest for you. Happy saving!
[1] Tax-free means that interest payable is exempt from income tax.
[2] The tax treatment depends on the individual circumstances of each customer and may be subject to change in the future.
[3] Deposits in any tax year are subject to the limits set by HM Revenue and Customs (HMRC) and may therefore be subject to change.
[4] Cash ISAs are available to individuals aged 18 or over who are resident in the UK for tax purposes.