Individual Savings Accounts

You can accumulate several ISAs over the years. And you can also consolidate your past ISAs by transferring them to your current ISAs if they offer more attractive terms.

However, you can only pay into one Cash ISA, one Stocks and Shares ISA and one Innovative Finance ISA in each tax year, and the total you invest across the three types of account must not exceed your ISA allowance – currently £20,000.

If you have opened a Junior ISA for your child, this is treated as outside your allowance (it’s your child’s account and their allowance, which is £9,000 a year for 2021/22).

To be eligible to open an ISA, you need to:

• Be 16 or older for a Cash ISA
• Be 18 for Stocks and Shares ISA or an Innovative Finance ISA
• Be the parent or guardian of a child under 18 to open a Junior ISA
• Be 18 to 39 to open a Lifetime ISA
• Be a resident in the UK (or a Crown employee if abroad)
• An ISA can only be held in one person's name. It’s not possible to have an ISA in joint names.

You can open an ISA in a branch, online, by post or over the phone, depending on the type of account and provider you choose.

You’ll need to put some money in when you open an ISA, meaning you’ll need funds available to cover the minimum amount, which can vary from £1 to more than £1,000.

You’ll need to give your personal details when you apply, including your:

• Name
• Address
• National Insurance number

You’ll need to read an ISA declaration, which tells you how ISAs work.

Read the application form carefully before signing, as it may include details of important restrictions such as withdrawal penalties.

You’ll be given a passbook, certificate or an online statement to view after you open your ISA.

When it comes to managing your account, you’ll need your passbook or certificate to make any withdrawals or changes to your account if you have a branch-based ISA. You can usually manage online ISAs via your computer, tablet or mobile phone.

Your ISA is flexible

You can withdraw money and pay it back in during the same tax year without it affecting your ISA allowance (e.g. if you deposit £5,000 then withdraw the same amount, you can still pay in a total of £20,000 this tax year)

You can also withdraw any ISA money you have from previous tax years, and have until the end of the tax year to pay it back in

In both cases, check the small print before doing anything as some ISAs limit the number of transactions you can make. As not all ISA providers allow transfers, you should also check the T&Cs before making a withdrawal.

Your ISA is not flexible

Any money you pay in then withdraw will still count towards your remaining ISA allowance (e.g. if you pay in then withdraw £5,000, you can only deposit up to £15,000 for the rest of this tax year).

Deposits that exceed the allowance will generally be rejected

Your money will also lose its tax-free status if you withdraw it and pay it into a normal savings account.

When you die your ISA becomes part of your estate and loses its tax-free status, meaning it’s liable to income tax, which will affect what your beneficiaries get.

The exception is if you leave behind a spouse or civil partner. In this case, they would see an amount equivalent to your ISA savings or investments added to their current year’s allowance, tax-free.

For example, if you die leaving £50,000, your spouse or civil partner would receive a one-off extension to their annual allowance of this sum, giving them a total allowance of £70,000 to invest as they see fit.

Even if you leave your ISA to somebody else in your will, such as your son or daughter, your spouse or civil partner will still benefit from the £50,000 additional ISA allowance.

You may want to move holdings in a previous year’s ISA to a new one if the rate of return is better. This is allowed under the rules; just don’t attempt a transfer until you’ve checked whether your new ISA allows transfers in.

To retain your tax advantages, you need to transfer your ISA directly from one provider to another.

This way, you won’t lose the ISA allowance you had already built up in an old ISA or affect your current year’s allowance. So if you move £20,000 from an old account to a new Cash ISA, you’ll still have up to £20,000 to deposit before the end of the current tax year.

If you want to transfer your ISA to another with the same provider, you can also ask to do an ISA consolidation, which lets you combine ISAs together into a new or existing ISA.

However, if you try to move your ISA by withdrawing the funds, you will lose its ISA status, as it’s no longer within the tax-free wrapper.

The Financial Services Compensation Scheme (FSCS) protects the first £85,000 of any cash or investments held in ISAs with each separately registered institution.

To qualify, your ISAs must be in a financial company, such as a bank or investment house, that’s regulated by the Financial Conduct Authority (you can check whether yours is here).

If you have more than £85,000 in savings with one institution, or two sister companies in the same group, you could end up out of pocket should the group go bust as the FSCS only guarantees a payout of £85,000.