Your ISA allowance: Debunking four common ISA myths so you can make the most of your ISA allowance 

An ISA is an Individual Savings Account. The ISA allowance for the 2022/23 tax year is £20,000 and has been confirmed to be £20,000 for the 2023/24 tax year. Each tax year runs 6^th April to 5^th April, so we’ll shortly be in a new tax year. The ISA allowance rules are black and white. If you haven’t used your ISA allowance by the end of the tax year, you’ll lose it. 

To find out how you can make the most of your £20,000 allowance and if an ISA is the right savings product for you, we cut through the confusion and debunk four common ISA myths. 

ISA myth one  

I can only have one ISA 

There are four different types of ISAs you can choose from: Cash ISA, Stocks and Shares ISA, Lifetime ISA and Innovative Finance ISA.  

It’s true that you can't fund more than one of each type of ISA in the same tax year, but, as long as you meet the eligibility criteria, there’s no limit on the number of ISAs you can have. 

So, if you wanted to open a Cash ISA and a Lifetime ISA at the same time, you can do this and split your annual ISA allowance between them for that tax year. Then, once a new tax year starts, you could open another Cash or Lifetime ISA, with a different provider if you wanted to. 

ISA myth two  

ISAs are for the very wealthy  

Saving and investing is often seen as something ringfenced for people with lots of money. This is definitely a myth which needs debunking. Savings accounts are for everyone, however big or small the amount you can afford to deposit or how much and often you can keep adding to the pot.  

Although some savings accounts may require a minimum deposit, it's all about finding the right savings product that can work for you and your financial goals. At Hodge, you can open a fixed rate cash ISA online if you're a UK resident over 18 with a minimum deposit of just £1,000. The interest paid will be free from income tax as long as you don't deposit more than the ISA allowance of £20,000 in a tax year. 

ISA myth three  

The Personal Savings Allowance means Cash ISAs aren’t worth investing in  

With the Cash ISA market estimated at £289 billion and forecasted to rise by £54 billion by 2027/28, there is still a lot of interest (excuse the pun!) in ISAs. 

Remember, your Personal Savings Allowance (PSA) doesn’t count towards your ISA allowance. Your PSA allows you to earn up to £1,000 in interest each year tax-free on your savings if you’re a basic rate taxpayer. It's £500 if you’re a higher rate taxpayer. Additional rate taxpayers do not qualify for a Personal Savings Allowance. Anything above these amounts means you’ll pay tax unless your savings are in a cash ISA, in which case all interest will be tax-free up to your ISA allowance.  

ISA myth four  

I should open my ISA at the end of a tax year  

The period between February and April is often dubbed ‘ISA season’. As we run up to the end of the tax year, savers look for the best way to make the most of their ISA allowance before they lose it. The truth is you can open an ISA any time during a tax year (which always runs from 6^th April to 5^th April) and benefit from the tax-free ISA allowance of £20,000. In fact, you could benefit from compounding interest during the year if you invest earlier in a tax year so there is an argument to say the earlier you save the more potential earnings in interest you could make.  

With fixed rate bonds and fixed rate cash ISAs, you’ll know precisely how much interest your money is earning. You'll also know the total sum you’ll get at the end of the fixed term. Choose a provider, like Hodge, with FSCS (Financial Services Compensation Scheme) protection. So your money's protected up to £85,000 by the Financial Services Compensation Scheme.  

Find out more about your ISAs and your ISA allowance  

Having fixed rate cash ISA is a great way to work towards your financial goals. If you’re looking to open a savings account, you can find Hodge online rates for ISAs here 

If you want to learn more about ISAs, read our blogs, ‘How savings accounts work: ISAs explained’ and ‘Three great benefits for anyone using a cash ISA’. 

This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information at unbiased.co.uk. 

Hodge ISAs
ISA applications will be paused from 31st March because we can’t guarantee the account will be opened by the end of this tax year. Any money sent after 4th April is not guaranteed to reach your account before the end of this tax year. 

Don’t worry, we’ll start taking applications again from 6th April, ready for the new tax year.

This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information at unbiased.co.uk.