Cash advice: ISAs

The end of the tax year is great opportunity to make the most of your tax-free ISA allowance, yet most people don’t put money into one. ISAs (Individual Savings Accounts) can protect your money from the tax man and if you haven’t used your allowance, now is the time to start. We bust the common ISA myths and look at why you should save in one. 1 I NEED £20,000 TO OPEN AN ISA…

WRONG: The maximum you can put into ISAs every tax year is £20,000, but you can save whatever you can up to that amount. Yes, that means you can start with just a pound!

2 ISAS HAVE POOR RETURNS…

WRONG: Like many deposit accounts, ISA rates are not great. But you benefit from tax efficiency, and they do not affect your personal tax allowance. If you consider a stocks and shares ISA instead, returns are potentially higher as you’ll be investing. But, there are no guarantees with investing and you may get back less than you put in.

3 I CAN ROLL OVER MY TAX-FREE ALLOWANCE…

WRONG: Your tax-free ISA allowance runs out on 5 April. If you don’t use it, you cannot roll it over into the new tax year. So, now is a good time to maximise your allowance as time is running out. If you haven’t used it by midnight 5 April, it will be gone. But, you’ll start the new tax year with a new allowance, which is also currently set at £20,000 for 2019/20.

4 I CAN ONLY PAY INTO ONE ISA…

WRONG: There are several types of ISAs, from cash ones to stocks and shares. You can have more than one, as long as they’re different types. So, you can’t have two cash ISAs for example, but you can have one cash and one stocks and shares – as long as you don’t exceed the £20,000 limit total.

5 YOU CAN’T TRANSFER ISAS…

WRONG: You can move your ISA from one provider to another with ease. You might want to move it for a better interest rate, or into a different type of ISA, such as from cash to a stocks and shares one instead. Not all providers accept transfers.