Maximise your savings with multiple ISAs

Please see our glossary for information on the financial terms used in this article. 

Different ISA types come with different features and benefits. If you know what you’re saving for, you might want to match your ISA type to your savings goal, because one type of ISA might help you reach your goal more quickly than others. If you have more than one goal, you might want to hold more than one type of ISA to really power up your savings potential.

Here we look at the different types of ISAs you can choose from and what they offer.

Many or few: what can ISAs offer you?

The main benefit of ISAs is that they’re tax-efficient. This means that you won’t pay capital gains tax or income tax on your investments.

Cash ISAs are more like traditional savings accounts, where interest is paid on your savings. However, unlike traditional savings accounts, you won’t pay tax on the interest you earn.

Investment ISAs, commonly known as stocks and shares ISAs, let you invest in different asset types, like equities (shares), bonds and commercial property, and you won’t pay any tax on the interest you earn. You won’t pay tax on any capital gains you make or dividends you receive either.

Stocks and shares ISAs are riskier than cash ISAs. This is because your investments can fall in value as well as rise, but your money has the potential to grow more significantly in a stocks and shares ISA than a cash ISA. Unlike a stocks and shares ISA, you won’t lose money saved in a cash ISA. However, if the interest rate being paid is less than the rate of inflation, the spending power of your money becomes smaller over time. But please note, M&G Investments offers stocks and shares ISAs only.

With a Lifetime ISA you can save for your retirement or your first house. You’ll receive a 25% bonus on your savings (up to a maximum of £1,000 per year). You can hold either cash or stocks and shares or a combination of both, and invest up to £4,000 each tax year, but please note that this counts towards your annual ISA limit. To open a Lifetime ISA you must be over 18 but under 40 years old. The main caveat is that you can only withdraw your savings to buy your first home or when you turn 60.

An Innovative Finance ISA lets you lend money to individuals and businesses (so called peer-to-peer lending and crowdfunding investments) through a lending platform in return for a fixed amount of interest. But there’s the risk that the borrowers may default and not pay you back in the future.

Opening more than one ISA

You can hold all these ISAs at any time, and you can open more than one of each type (with multiple providers if you wish). Your allowance won’t change, and will stick at £20,000 per tax year across all the ISAs you hold. You can also open more than one of the same ISA type, giving you greater freedom to experience what other providers have to offer.

If you find in a new tax year that a different provider is paying a better interest rate for a cash ISA than the one you’re already with, you can also open a new account with them or transfer your existing ISA over. (Some providers don’t allow transfers, so it’s good to check this first.) You could move all or part of your savings from previous tax years without affecting your ISA allowance for the current tax year.

Whether you’re thinking of your first house, your retirement or simply a rainy day, there’s an ISA out there for everyone. 

Please note, your current provider may apply a charge when you transfer your investment and also that, whilst your investment is being transferred, it will be out of the market for a short period of time and will not lose or gain in value.

The tax rules for ISAs may change in the future, and their tax advantages depend on your individual circumstances.

Up to £85,000 of your money is secure in a bank or building society through the Financial Services Compensation Scheme, unlike stocks and shares or fixed interest investments which are less secure.

 

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

The views expressed in this article should not be taken as a recommendation, advice or forecast.