Individual Savings Accounts (ISAs) are different from standard savings accounts, as they offer tax-free interest payments. Different types of ISAs are offered by banks, building societies, credit unions and other financial institutions, so it is important to do some research to find out which ISA may be right for you. Read on to find out more about ISAs.
How many ISAs can I have?
People can have more than one ISA, but they can only open one cash ISA in each tax year.
The Government website explains people can put money into one of each kind of the four types of ISA per tax year.
The total ISA allowance is £20,000 – this is the maximum someone can pay into an ISA per year.
However, Lifetime ISAs have a limit of £4,000, meaning this is the maximum someone can save into the account per year.
Mark Collins, Head of Tax at Handelsbanken Wealth & Asset Management, told Express.co.uk: “The overall ISA allowance for 2020/21 is £20,000, which means you can invest in any combination of cash or stocks and shares, provided that the amount invested does not exceed that level.
“A typical family of four could potentially fund ISAs up to a value of £58,000 with the parents using the £20,000 allowance each and both children using the £9,000 Junior ISAs allowance.”
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What does the end of the tax year mean for ISAs?
With the start of the new tax year, ISA limits will refresh, so it is important to act now to maximise savings.
The 2020 to 2021 tax year will end on April 5, 2021, making way for the 2021 to 2022 tax year.
James Norton, Senior Investment Planner at Vanguard, told Express.co.uk: “As the end of the tax year approaches, the key thing for people to remember is you either ‘use it or lose it’ with some key allowances.
“If you have an ISA, any fund-related interest, income or capital gains you earn in it, is free of tax.
“It’s the big advantage ISAs have over general savings accounts. These tax advantages of an ISA can make a big difference to your savings over time, even more so if you’re investing in a stocks and shares ISA.
“In total, you can save or invest £20,000 into your ISAs across the current tax year.
“You can invest the whole amount in one ISA, or split it between cash ISA and stocks and shares ISA.
“Lifetime ISAs work slightly differently as you can only save up to £4,000 a tax year – and this still comes out of your £20,000 allowance.
“If your child has a Junior ISA (JISA), £9,000 can be saved into this per tax year.”