We’re closing in on the end of the tax year, which means time is almost up for making the most of your ISA allowance. You can put away £20,000 into a tax-free ISA, and you have until 5 April 2024 to use the allowance, after which you lose it.
The new tax year then starts on 6 April when a new allowance, also £20,000, starts. If you’re looking to put some money into savings, then makes sense to make save it into an ISA now if you haven’t made use of your tax-free savings.
Despite their generous offering, ISAs are not always the first choice – partly because of the misconceptions around them. To help you with your savings, we have answered some of the most common questions around ISAs, so that you can start putting money away with confidence.
I don’t have £20,000 to save, so can I open an ISA at all?
£20,000 is the maximum you can put into an ISA, but not the minimum. You can actually open an ISA with just £1. Some investment ISAs may have a minimum lump sum for opening the account or a minimum monthly contribution requirement, but these can be as small as £50.
What is the difference between cash ISA and an investment ISA?
A cash ISA works like a savings account – you put the money in and it earns interest. The interest earned in an ISA is tax-free and remains tax-free year on year. A stocks and shares ISA invests in the stock market, which means your money is put to work harder. A stocks and shares ISA is a better option if you don’t need your money for at least five years and ideally ten.
If you have children, they can have Junior ISAs. The Junior ISA limit for this tax year is £9,000.
Can I take money out of my ISA when I want?
Yes. Some accounts are as ‘easy access’, meaning you can take your money out as you please and replace it again. Others require you to leave your money in there for a fixed period, which means if you take money out, you may lose interest or be charged a penalty.
I am married, can both my partner and I have an ISA?
Yes. ISAs are available for all individuals regardless of marital status.
Can I transfer my ISA between providers?
Yes. In fact, you should always shop around for the best deals. If it’s a cash ISA, get the best possible interest rate. If it’s an investment ISA, check fees and other charges.
If you want to switch, use the relevant forms, it can usually be done online – don’t just take the money out.
Do I have to pay into it regularly?
No, not unless this is a condition of a specific account. All accounts are different, so get one that suits you.
Can I have more than one ISA?
You can have lots of different ISAs as long as you are eligible for each one. But, you can currently only open and contribute to one of each type in this tax year. This rule will change from 6 April 2024, so you can open several ISAs of the same type.
I don’t pay tax anyway because of the personal savings allowance (£1,000) and tax-free dividend allowance (currently £1,000, but dropping to £500 in the new tax year), so why bother with an ISA?
While it is true that these allowances mean you may not have to pay tax on savings, these allowances can change any time the government wants. Also, if you have a large portfolio, you could become subject to capital gains tax. ISAs can protect you from tax on dividends and capital gains tax forever.
Photo by Kelly Sikkema on Unsplash
