Most people, when they think of the term ISA, believe that they are allowed one only.
However, it is possible to have more than one ISA. You can split your savings between cash ISAs, stocks and shares ISAs and Innovative Finance ISAs.
In order to simplify finances, some investors might prefer to consolidate them – as you might have numerous ISAs from multiple years.
Although there are plenty of Stocks and Shares ISAs available, more and more investors are preferring to invest in the greater security that is offered by an Innovative Finance ISA.
- The number one choice for stocks and shares ISAs
- Open an ISA account for £9.99
- Contribute as little as £25 per month
Important information - investment value can go up or down and you could get back less than you invest. If you're in any doubt about the suitability of a Stocks & Shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.
Overall, there is no actual limit placed on the number of ISAs you can have in total, but the rules state that you are only permitted to invest in one of each different type of ISA per tax year. As such, this means that you could accrue numerous ISAs if you open a new set every year.
However, in reality, this isn’t practical, so you may prefer to be more selective in the amount and type of ISAs that you choose to invest in.
The financial sector is changeable – and as such, which ISA is the best investment one year doesn’t necessarily reflect which is the best the following year. However, you don’t need to be stuck with an ISA that has stopped performing.
Paying into two ISAs in one year
As soon as you have invested in an ISA, you are then free to move it to another. This means that if you have previously been putting money into one ISA, but you later come across an alternative ISA from another provider that offers a better rate, then it is possible to still take advantage of it by transferring your funds from one to the other.
If the money being transferred is from savings made in previous years, then even if you move it to a new ISA< this will not affect your allowance for the current taxable year. However, if you choose to move your savings that have been made that year then you can’t move some of your money, it all needs to be transferred.
Also, not every ISA will accept a transfer, so check out the product carefully before applying. Furthermore, you are also able to transfer money into a completely different type of ISA – i.e. it doesn’t need to be from cash ISA to cash ISA.
It could be a cash ISA into a stocks and shares ISA for example – which might have the potential for better returns and retain your ISA tax protection. However, shifting from a cash ISA to stocks and shares ISA makes it more of an investment – and thus more at risk.
As we already know, although some types of ISAs offer better interest rates than others – which gives the potential for better investment returns… especially stocks and shares ISAs, you also need to take into account that they all have different risk profiles.
As such, a serious investor might consider building up a portfolio of all different types of ISAs to give a variety of risk v rewards options that best suits your plans and attitude to risk.
Yearly payments into more than one ISA
As stated, an investor can open one of each type of ISA per tax year – from April 6th until April 5th the following year. However, there are some complications that you might encounter in practice.
For example, If you take out a cash ISA one year, but keep on paying into it into the following tax year, this will then be considered as your cash ISA for that tax year as well… so you won’t be allowed to open or pay into another cash ISA that year.
There are a handful of cash ISA providers that will allow you to take out more than one cash ISA in the same tax year without being in breach of HM Revenue and Customs ISA rules and regulations. This is only made possible by the fact that they work under an ‘umbrella’ system. This means that they bundle all of their cash ISAs together under one umbrella. This is particularly helpful if you are looking to open a fixed-rate cash ISA but you don’t have enough money to fully utilise your entire ISA allowance.
However, you are only allowed to contribute to one of each specific type of ISAs in the same tax year. This means that you can, theoretically, take out a cash ISA, a stocks a shares IS, a Lifetime ISA and an IF ISA in the same year.
Opening more than one Stocks and Shares ISA
Because of the potential returns from a stocks and shares ISA, there might be a desire to open up more than one stocks and shares ISA. However, you can’t open more than one in the same year – due to the rules and regulations that apply to all ISAs. However, because your allowance refreshes every year, it is possible for you to open stocks and shares ISAs every time a new tax year begins – without limit.
Why have more than one ISA?
Because you don’t pay any tax on the returns that you make from your ISA investment, this effectively increases how much it can grow and how quickly it all builds up. It is all ISAs that have this advantage – not just stocks and shares ISAs, but they work in all different ways. This means that you can create a balanced ISA portfolio by splitting your years ISA allowance over the different types of ISAs.
Splitting an allowance between two providers
You can choose exactly how you want to use your yearly ISA allowance. You may choose to invest a part in a stocks and shares ISA – with lots of potential for good returns, and some of it into a cash ISA, where you can get a slower return but with less risk attached.
How you split your investments is completely up to you based on your personal risk profile.
However, you don’t just have the option of splitting your funds between different types of ISAs, but also between different ISA providers.
As such, you can look for the performers that offer the best rates for all different types of ISAs. So, you can put 30% of your money into a cash ISA from one ISA provider and 70% of your investments into a stocks and shares ISA from a completely different provider.
The different types of ISAs
As stated, you can split your personal savings allowance into different types of ISAs. Here are the different types of ISAs currently available to investors.
The most popular type of ISA is a cash ISA, which allows you to save £20,000 per year without needing to pay tax on any growth. It also allows you to withdraw money when needed, unlike others, which need you to lock in your money for a set period of time.
A Cash ISA works in a very similar way to a standard savings account. As such there are lots of products on offer – many of which offer fixed interest rates for either one, three or five years.
Cash ISAs keep your money secure because they won’t ever decrease in value – although when interest rates drop, the growth rate can be slow.
Stocks and Shares ISA
This is more of an investment than a savings account. They can involve investing in bonds, funds and investment trusts. This means that they are subject to the whims of the stock market – and, as such can fluctuate – up or down.
This type of ISA is usually run by a fund manager or fund platform – which means that they charge fees for managing, buying and selling your investments.
A stocks and shares ISA is generally considered a medium to long term investment strategy – so if you want a quick fix or instant access to your money, these aren’t recommended.
Innovative Finance ISA Accounts
This is another type of ISA that, like a stocks and shares ISA, is considered an investment ISA but instead of investing in funds or cash, it is based around peer-to-peer lending.
These peer-to-peer loans involve lenders and borrowers being matched up using an online portal as opposed to a loan company or bank.
Peer to peer lenders have been able to offer ISA accounts since 2016. These generally involve greater risks, but better rewards.
However, before considering opening one, you will need to be aware that unlike other types of ISAs, an Innovative Finance ISA is not covered by the Financial Services Compensation Scheme, which makes them even higher risk.
The Lifetime ISA was originally introduced in 2017. The idea behind it was to help those that were either saving for their first home or saving for their retirement.
The difference with others is that you can only invest £4,000 per year out of your £20,000 annual ISA allowance.
Then, the government will add a 25% bonus to your investment when that tax year comes to an end.
Junior ISA Account
Finally, we have Junior ISAs. However, these are only available for those under the age of 18 and need to be redeemed when turning 18.
They can then do with the funds exactly what they wish – including investing it into another type of ISA The maximum annual ISA allowance for a Junior ISA is £9,000. It can be opened on behalf of a child by the parent or grandparent.
It is also worth being aware that the Junior ISA allowance is not attached to and has no impact on any other ISA allowance.
Frequently asked questions
Can I have more than one Cash ISA in the same tax year?
Yes. However, you cannot open more than one cash ISA in the same tax year or invest in more cash ISA in the same year. This means that you can open a cash ISA one year and invest up to £20,000 tax-free and open another one the next financial year and invest up to £20,000 that year. However, you will not be able to invest in your first cash ISA at the same time.
What happens if I have more than one ISA?
You can open more than one ISA in a tax year as long as they are different types of ISAs. You can then split your £20,000 allowance between those different types of ISAs. You can only have more than one of the same type of ISA if you open the second up in a different tax year and don’t invest in your previous one during that same year.