Interest on an ISA works differently depending on the type of ISA you have. For a Cash ISA, interest is calculated based on the balance in the account and the interest rate offered by the provider. The interest rate can be fixed or variable, depending on the specific ISA product. Interest is typically calculated daily or monthly and paid out periodically, such as annually, semi-annually, or monthly. The frequency and method of interest payments may vary depending on the provider and the specific ISA product.
In a Stocks and Shares ISA, interest is not the primary source of returns. Instead, returns are generated through dividends, capital gains, or interest from bonds held within the account. These returns are tax-free, allowing your investments to grow without being subject to income tax or capital gains tax.