Busting common myths around cash ISAs
March 2025
4 minute read
Busting common myths around cash ISAs
March 2025
4 minute read
The world of ISAs (short for Individual Savings Accounts), can often be thought of as a little complex. But in reality, ISAs can be a great, tax-free way to save and make the most of your money.
Each tax year, you have an annual allowance of £20,000* that you can invest in ISAs, tax-free. There’s a variety of ISA account types and features available to suit your individual needs. You can explore all the ins and outs of ISAs in our helpful guide, Making sense of ISAs. This covers more about the different ISA account types and features you'll find, how they work, and how you can make the most of your tax-free savings.
So whether you're saving for a once-in-a-lifetime holiday or a brand new car, you’re starting your journey into the world of ISAs or you’ve got a few accounts filled with savings already, we’ve broken down some common cash ISA myths to help separate fact from fiction.
Myth one: Money in a cash ISA is locked away and inaccessible
First things first, the amount of access you have with any cash ISA depends on the type of ISA you’ve opened. Here’s a quick break down of some of the different types of cash ISAs you can get:
- Easy access ISAs let you save and earn interest – and also let you take money out as often as you want.
- Limited access ISAs may have a better interest rate than an easy access ISA, in return for less access to your money (and often, you’ll be charged if you go over your limited number of withdrawals).
- Fixed rate ISAs are good to help you earn interest on lump sums that you don't need to access for a while. You can often only withdraw funds before the end of a fixed term by closing the account which typically will incur a charge.
- Regular saver ISAs are designed to let you put aside some money every month to build up a pot of savings, rather than saving a larger lump sum in one go. These ISAs usually feature a maximum deposit limit each month that is within the annual allowance and you may find you're charged if you withdraw funds or close the account early.
Some cash ISAs can also be flexible, meaning you can take money out and replace it later in the same tax year, without it impacting your annual allowance.
Before you open a cash ISA, it’s always a good idea to think about what you’re going to be using your savings for so you can decide the best option for you!
Myth two: Each tax year, you must use your full ISA allowance
Myth three: The interest you earn on your cash ISA counts towards your annual ISA limit
Myth four: You can only pay into one ISA each tax year
There’s no limit to the number of ISAs (apart from Lifetime ISAs) that you can open with different providers. This means you can contribute to multiple ISAs in the same tax year, and some providers will let you divide your current year's ISA allowance between different products. This could help you take advantage of different account features to suit your savings goals.
You can only have one cash ISA with us for your current year’s allowance, but you can split previous years’ deposits across multiple ISAs, e.g. you could open three cash ISAs with us and divide your previous years’ deposits between a fixed cash ISA and an easy access ISA and pay current year’s deposits into the third cash ISA (if the specific terms of the account allow this).
Myth five: Transferring an ISA means losing its tax-free benefit
It absolutely doesn’t, so long as you do it right!
When you decide you’d like to do an ISA transfer, you should always contact the ISA provider you're transferring to, to complete this for you. They’ll arrange for your money to be moved across into your ISA account so your savings keep their tax-free status.
It’s important you don’t try to complete the transfer yourself! If you withdraw funds from your ISA into another account, they’ll lose their tax-free status. And if you add your savings into a new ISA yourself, they’ll be treated as a new deposit and count towards your annual allowance.
To find out more about how the ISA transfer process works, take a look at our guide, Making sense of ISA transfers.
Don’t let common myths hold you back from maximising your tax-free savings options. And remember, at Coventry Building Society we offer a number of different cash ISAs, so you can find your perfect ISA fit and save for your sunny days.
*This is the total amount you can save in ISAs each tax year. This figure is set by the government and therefore may be subject to change. Correct for the 2024/2025 tax year. Lifetime and Junior ISAs have different annual allowance limits.
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