Common ISA myths explained

ISAs don’t need to feel complicated. They’re simply a way to protect more of your savings from tax.

But a few common myths still cause confusion. Understanding the latest ISA rules and allowances can help you make informed, confident choices about how you save.

Let's break down some of the most common ISA myths.

Myth: You can only have one ISA

The truth: You can open more than one ISA.

Some providers let you pay into multiple cash ISAs with them. Others will only allow you to pay into one. It's worth checking this with your provider.

You may be able to pay into other ISA types too, as long as you stay within your annual ISA allowance.

At Principality you can only pay into one cash ISA each tax year. 

Myth: You can only save with one provider

The truth: You can hold ISAs with more than one bank or building society. 

Your ISA allowance belongs to you, not your provider. So you can hold ISAs with more than one provider, as long as your total contributions stay within the annual allowance.

Myth: You lose your allowance if you withdraw money

The truth: This depends on the type of ISA you have.

Some ISAs are flexible, meaning you can withdraw and replace money within the same tax year without affecting your allowance.

Others don’t offer this kind of flexibility. It’s important to check the rules of your specific ISA.

Myth: ISAs are only for long-term savers

The truth: ISAs can suit both short and longer-term savings goals.

The key is choosing the right type of ISA. For example if you may need to withdraw some money before the end of your term you should choose an ISA that allows you to make withdrawals.

If you’re saving for the future and confident you don’t need to access your savings for a set time, you could choose to lock your money away for longer. 

Myth: ISAs aren’t worth it if interest rates are low

The truth: It depends on your goals.

Even when interest rates are lower, the tax-free benefit of an ISA still applies.

Over time, especially for larger balances, earning interest tax-free can make a meaningful difference.

Myth: You need to use your allowance in one go

The truth: You don’t have to use your ISA allowance all at once. 

You can add money gradually throughout the tax year; as long as:

•    You stay within the allowance
•    Your ISA allows you to make regular payments in.