Individual Savings Accounts: An Overview - Part 3 of 3

This is our last in the series, which will be a Q&A on common questions you might have, which type of Individual Savings Account (ISA) is better than others and how you can combine different ISA types under one rather than have individual ISA of each type. In previous posts we looked at the ISA options individually, so if you're joining us late, you might want to skim over the first two parts. In Part 1, we covered the Cash, Stocks and Shares, Help-to-Buy, and Lifetime ISAs. For Part 2, we tackled the Innovative Finance, Junior, Inheritance, and Flexible ISA options.

Question mark drawn in chalk on blackboard. Questions you might have about different ISAs and mixing them together.

Can I have a mixture of some of these ISA options?

The short and sweet answer: yes. The long answer: with a little bit of work.

Overall, the £20,000 yearly limit remains the same - but you can choose how exactly you would like to split that amount. For instance, you could have:

  • £4,000 contribution to a Lifetime ISA (yearly maximum)
  • £10,000 as cash
  • £6,000 consisting of stocks and shares

If I already have an ISA, can I turn it into a different type?

Yes, you're more than welcome to convert between ISAs, but be aware that the amount you can transfer still remains the same. It's also important to realise that the process for transferring between providers has to be followed closely to avoid incurring penalties or exit fees when you aren't actually withdrawing the money to use.

Before transferring an ISA to a different provider, all the paperwork has to be completed and the account moved. Once that's sorted, the funds themselves can be moved. If the funds are taken out before the account itself is transferred, then penalties for "withdrawing" the money early might come into effect.

Can I have more than one ISA open rather than combining different types within an individual ISA?

Yes, you can have ISAs for different types (e.g. one cash, one stocks and shares, one lifetime) so that they're separate. However, you can only open one cash ISA each tax year.

All savings these days are tax-free, what's the point of an ISA?

From 2016, a new personal savings allowance (PSA) was announced, meaning that all savings become tax-free. Taxpayers who pay a 20% rate can earn a maximum of £1,000 in interest each year without needing to pay tax on these earnings. Those who pay 40% can earn up to £500 interest without being taxed, and those who pay the highest rate of 45% are taxed regardless.

This means that for the majority of people, a cash ISA is more appealing- however, even cash ISA don't pay the highest interest rates compared to some high interest current accounts

So, after all this- which ISA should I choose?

At the end of the day, it isn't about choosing what's "best", as realistically there isn't one that has distinct advantages for everyone over some of the other options. Really, it depends on your own individual situation.

For people just looking to set money aside for a deposit, mortgage, or retirement, a Lifetime ISA would be better suited, compared to a higher earner who could gain more interest using an Innovative Finance or stocks and shares ISA.

Savings and Debitoor

Although we can't tell you which ISA option is the best for you (after all, we aren't accountants), we can at least give you an idea of the choices you have when it comes to putting money aside for a rainy day- as well as help you do your accounting and invoicing quickly and easily.

This means you can focus on your clients and doing what you love without the nagging feeling that you should be doing something more to prepare for retirement later in life.

Written by JackJack, 19 December 2018