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.

Common myths about ISAs

Myth: You can only have one cash ISA.
Truth: There's no limit to how many cash ISAs you can have.

Some providers let you open and pay into multiple cash ISAs with them. Others will only allow you to pay into one.

Like at Principality, where you can only pay into one cash ISA each tax year.

It's worth checking this with your provider.

You can pay into other types of ISA too, as long as you stay within your overall annual ISA allowance.

 

Myth: You can only save with one provider.
Truth: You can hold ISAs with more than one bank or building society.  

Your ISA allowance belongs to you, not your provider.

That means you can hold ISAs with more than one provider.

The amount you pay in each year across all your ISAs must stay within your annual ISA allowance.

 

Myth: You lose your allowance if you withdraw money.
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.
Truth: ISAs can suit different 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 lets you make withdrawals.

If you’re 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.
Truth: It depends on your goals.

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

Interest rates are only of of the things to consider when choosing how to save.

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

 

Myth: You need to use all your ISA allowance in one go.
Truth: You don’t have to use your ISA allowance all at once. 

You can add money into your ISA gradually throughout the tax year; as long as you stay within the allowance and you choose an ISA that lets you make regular payments.

Remember, you can't carry any unused allowance over to the next tax year.

 

Myth: ISA allowances are going to be capped from 2027/2028.
Truth: The overall ISA allowance won't change. 

Everyone will still have the same overall £20,000 cash IAS allowance.

If you're over 65 you'll have the flexibility to keep it all in a cash ISA.

But if you're under 65 you'll only be able to put a maximum [macros/newisaallowance] into a cash ISA.

So you'd have to use the rest of your allowance - £8,000 - in a different type of ISA.