Individual savings accounts (ISAs) can be a really useful way to save or invest your money tax-efficiently, as returns are free of income tax and Capital Gains Tax.
Aside from the tax benefits they offer, one of the best things about ISAs is that you can spread your yearly allowance over more than one type of ISA as well. For example, you might decide to save some of your allowance in a cash ISA and then possibly invest the rest in a stocks and shares ISA which has the potential to offer higher returns in return for you accepting a higher level of risk, as there’s a chance you could get back less than you put in.
But there are certain limits to how many ISAs you can open and pay into in a given tax year, so it’s best to know the rules to avoid getting caught out.
In this article, we’ll explain how ISAs work and how many accounts you can have.
How do ISAs work?
An ISA is essentially a tax-efficient wrapper for your money in which you can hold savings or investments. You can deposit a certain amount of money into your ISA or ISAs each year (£20,000 in the 2023/24 tax year), without having to pay tax on any interest or returns generated.
There are several types of ISA to choose from. The main ones are cash ISAs and investment ISAs, though there are also innovative finance ISAs, which invest in peer-to-peer lending. To learn more about the basics of ISAs and understand how each type works, read our article Everything you need to know about ISAs.
Can I have multiple ISAs?
Yes – you can have as many different ISAs as you like, as long as you are eligible for them. Some ISA types have age limits on who can use them (junior ISAs are for children under 18 for example, while lifetime ISAs are specifically for those aged between 18 and 40). Outside of this, you can have as many ISAs as you want, including multiple accounts of the same type, but you can’t pay into more than one of each type in any one tax year.
This means that, as mentioned previously, you can spread your £20,000 yearly allowance across more than one of your ISAs in any given tax year if you so choose – but if you do choose to split your allowance, it needs to be across ISAs of different types.
In other words, you cannot spread your allowance over more than one of the same type of ISA in the same tax year. So, you could put £10,000 in one cash ISA in the 2023/24 tax year, and £10,000 in one stocks and shares ISA. However, you could not put £10,000 in one cash ISA, and another £10,000 in a different cash ISA.
You could, if you so chose, make a deposit into a cash ISA in the 2023/24 tax year, and then make a deposit into a different cash ISA in the following 2024/25 tax year. However, you would then not be able to add to the first cash ISA again until the tax year after that. Once you pay into an ISA, you are effectively tied to that account for that type of ISA for the rest of the tax year.
For those aged over 40, this effectively means that the maximum number of different types of ISA you can spread your allowance over in a given tax year is three, that is if you have a cash ISA, a stocks and shares ISA, and an innovative finance ISA. You can decide how to split your allowance, although some ISA providers will have a minimum deposit threshold that you’ll have to adhere to.
You can also have a Junior ISA for your child, but this will be in their name, not yours. The Junior ISA allowance is separate to your annual ISA allowance, and you can pay in up to £9,000 on behalf of your child this tax year.
No matter what, you can’t pay in more than your annual ISA allowance in a given tax year. Most providers will stop you if you try to do this, although if you have ISAs with multiple providers it can be harder for them to catch. If you think you have deposited more than your annual allowance in a single tax year you should contact HMRC by calling their helpline on 0300 200 3300.
Can I transfer money from one ISA to another?
Yes, as long as the ISA you want to move to allows transfers in. Most ISA providers will have a service that allows you to transfer your pot from a different provider to theirs if you so choose. You might do this to benefit from better interest rates, to consolidate your savings in one account, or because you’ve found a new provider offering lower dealing charges and a broader range of investments.
You should always do an official transfer, and never withdraw your money from one ISA to put in another manually. Doing so means that your money will lose its tax-free status.
There are certain rules around ISA transfers that you should be aware of, however. If you put money into an ISA and then decide you want to transfer it in the same tax year, you can do so, but you will need to transfer the entire amount – so both the capital and interest received. You can’t just transfer some of the money in this account to another provider.
If you have money in an ISA from a previous tax year that you would like to transfer, then you can do this, and either transfer all of it or only some of it if you wish.
Read more about how ISA transfers work in our article ISA transfers: what are the rules?
How many ISAs do I need?
There’s no one answer to this question. The types of ISAs that suit you best – and the best number to have – will depend on your financial situation, your goals and how keen you are to take risks with your money. In most cases, it is usually not worth the hassle of having more than one type of each ISA, and you may not even feel the need for more than one ISA overall.
If you’re looking to invest in an ISA, fund platforms such as Fidelity, Hargreaves Lansdown and AJ Bell can help narrow down your choices with recommended fund lists, which might highlight 50 funds out of the 3,000 plus available to UK savers. They also offer ready-made funds for a range of different risk profiles if you don’t want to pick investments yourself. Bear in mind that there are charges associated with stocks and shares ISAs and you’ll pay a fee to the platform as well as for the funds held.