Put simply, an Isa, or individual savings account, is an account where you never have to pay tax on what you earn on your money.

Introduced on April 6 1999, they replaced previous tax-free savings plans called PEPs (personal equity plans) and TESSAs (tax-exempt special savings plans). With the introduction of Isas, both TESSAs and PEPs were gradually phased out and replaced by similar products.

TESSAs were replaced by cash Isas and any remaining PEP accounts automatically became stocks and shares Isas.

Each tax year you get an Isa allowance which sets out the amount of money you can invest tax-free for the year in an Isa. This is in addition to the personal savings allowance, which allows savers to earn up to £1,000 interest on their savings tax-free.

The current Isa allowance for the tax year 2017/18 is set at £20,000 and this can be invested in a cash Isa, stocks and shares Isa, an Innovative Finance Isa, a Help to Buy Isa, a Lifetime Isa or certain combinations of more than one type of Isa.

Depending on the rules of your Isa, you should be able to withdraw money from your cash Isa without losing the tax benefits.

However, generally speaking, you won’t be able to top your Isa back up to your annual allowance, unless you have a flexible Isa, which does let you top up your account back up to the annual Isa allowance if you withdraw some of your savings.

And, if you find a better rate of interest being paid by another provider, you can switch accounts and move all of your investment to a new provider. Depending on the rules of your Isa, you may or may not be charged for the switch.

Who can open an Isa?

If you’re a UK resident and aged 16 or over you can open a cash Isa. You need to be 18 or over to open a stocks and shares Isa or Innovative Finance Isa.

If you want to invest in an Isa for younger children you’ll need to open a junior Isa.

What are the different types of Isas available?

Whether you’re looking for a high-risk/high-interest account, saving to buy a house or fancy lending your money to make more money, there are a number of different options for people want to invest in Isas

Cash Isas

A cash Isa is a simple savings account with the added bonus that the interest on your savings is tax-free for life. They’re open to anyone aged 16 or over and there are no set-up fees.

Cash Isas are low-risk savings accounts and the interest rates reflect this.

Compare cash Isas

Stocks and shares Isas

A stocks and shares Isa is more high risk than a straightforward cash Isa because your savings are used to invest in shares and bonds in individual companies meaning your investment can go up, but it can go down as well.

The general rule of thumb for a stocks and shares Isa is that it’s a long-term investment and you should put your money away for at least five years to reap the rewards.

As your savings are being invested, be prepared to pay fees for setting up the investment and closing it down or withdrawing cash.

Compare stocks and shares Isa costs (capital at risk)

Help to Buy Isas

As the name suggests, Help to Buy Isas were introduced with the aim of encouraging and helping first-time buyers to save to buy a property. Not only does the Help to Buy Isa offer tax-free interest, if you manage to save at least £1,600 you’ll be entitled to an additional 25% bonus from the government to top up your savings when you do buy a home.

This can range from £400 up to £3,000 in free cash.

[Read more: Help to Buy Isas: what are they are and how much can you save?]

Innovative finance Isas

Money invested in an Innovative Finance Isa is used for peer-to-peer lending. The return on your investment is dependent on the amount of interest paid by borrowers as well as the marketplace.

Although a riskier option than a cash Isa, some Innovative Finance Isas are paying as much as 4% interest making them appealing.

Lifetime Isas

Lifetime Isas are available to people under the age of 40 with the aim of giving them an incentive to save for their first home or their retirement. Unlike a traditional Isa the government offers a 25% bonus on any money saved.

The bonus will be capped at £1,000. You can save up to £4,000 in a Lifetime Isa per tax year.

Savers can either use their savings plus the bonus to put down a deposit on a home, or wait until they are 60 and cash in the pot and the bonus tax-free.

[Read more: Lifetime Isa: what it is, how it works and interest rates]