Many savers fail to maximise their ISA allowances due to widespread misconceptions about Individual Savings Accounts (ISAs). These tax-free savings vehicles offer significant benefits, yet errors in usage prevent people from optimising their finances.
Multiple ISAs Now Allowed Without Limits
A key misunderstanding persists: the belief that savers can only hold one ISA at a time. Current rules permit opening and contributing to any number of ISAs in a tax year, except for Lifetime ISAs and Junior ISAs, which limit contributions to one account each per year.
Dan Coatsworth, head of markets at AJ Bell, explains: “A lot of people don’t realise the rules have changed on ISA ownership. Historically, you could only pay new money into one ISA of each type in a tax year. There are now no limits on the total number of ISAs you can open in a tax year.”
He emphasises tracking contributions carefully: “If you want to make use of this flexibility, just make sure you are keeping track of what you’ve paid in and where, to make sure you don’t go over your ISA allowance.”
Selecting the Wrong ISA Type
Another frequent error involves choosing an unsuitable ISA type. With six options available, savers often opt for a one-size-fits-all approach, missing better alternatives for their goals.
For long-term savings, a Cash ISA restricts holdings to cash, while an Investment ISA allows shares, funds, and bonds for potential growth. Coatsworth notes: “You may have picked a Stocks and Shares ISA to save for the deposit for a first home, but you could have benefitted from the 25% government bonus available on the Lifetime ISA.”
He adds: “Everyone loves free money, but only Lifetime ISA holders get the extra cherry on the cake.” Similarly, for children’s savings, a Junior ISA provides a dedicated allowance, avoiding the need to use a parent’s limit.
Maximise Your £20,000 Annual Allowance
Adults over 18 can contribute up to £20,000 yearly across ISAs, with Lifetime ISAs capped at £4,000. Unused portions do not roll over—act before the 5 April deadline.
Coatsworth advises: “Investors with spare money to save and any unused ISA allowance for the current tax year should consider using it before the 5 April deadline.”
