What is an ISA?
You can invest in more than one ISA but there are two basic rules with which you need to comply.
- Your total investments in any tax year cannot exceed the maximum annual allowance (£20,000 tax year 2020/21)
- If you want to invest in more than one ISA then they must be different ISA types.
What are the different ISA types?
Think of a Cash ISA like an ordinary savings account that doesn't get taxed on any growth. There are a plethora of accounts available including accounts that offer fixed interest for typically 1, 3 or 5 years. With a Cash ISA your savings are secure as they can't go down in value, however, the interest rates can be low, so growth will be slow.
Stocks and Shares ISA
With a Stocks and Shares ISA you can invest in funds, investment trusts, bonds or company shares so any investments can go down as well as up over time. Stocks and Shares ISAs are usually run by fund platforms or fund managers so they will charge fees for both managing your investments and when buying and selling investments. Investing in a Stocks and Shares ISA should be considered a medium to long term investment so not recommended if you would require quick access to your money.
A Lifetime ISA (LISA) was introduced in April 2017 and was designed for those wanting to either save money to buy their first property or for retirement. The maximum investment in any tax year is £4,000 which forms part of your overall annual allowance of £20,000. The government will add a 25% bonus to your investment at the end of each tax year.
You have to be aged 18-39 to open a LISA with the government bonus being paid until age 50. You can redeem your savings from age 60 unless it is to specifically buy a first property. If you needed access to your money before age 60 and you are not buying a property then a 25% penalty would apply to the amount you withdraw. The withdrawal penalty doesn't apply if you die or are terminally ill. It is worth noting that in May 2020, the treasury temporarily reduced the withdrawal penalty to 20% and it will stay at this rate until the 5th April 2021.
Innovative finance ISA
An innovative finance ISA is a form of investment ISA that invests in peer-to-peer loans, instead of cash or funds. Peer-to-peer lending is where lenders and borrowers are matched through an online portal rather than via a bank or loan company. Since April 2016 peer-to-peer lenders have been allowed to offer ISA accounts and because of the increased risk involved, can offer a higher potential growth rate. Unlike standard ISAs, innovate finance ISAs are not covered by the Financial Services Compensation Scheme (FSCS) and therefore are considered a higher risk investment.
If you are a parent or guardian then it is also possible to invest in a Junior ISA which will enable you to build up an investment for when the child reaches the age of 18. The maximum investment in a Junior ISA is £9,000 per child for the tax year 2020/21. Once open anybody can invest, such as grandparents or other family members. Once the child reaches the age of 18 the ISA becomes the child's property to withdraw or to carry on investing. The Junior ISA annual allowance does not affect any other annual ISA allowance. In our article - What is a Junior ISA and how does it work?
Can I invest in more than one ISA?
The simple answer to this question is yes you can have more than one ISA but you cannot open more than one ISA in each ISA category in each tax year.
So in the same tax year you could open:
- 1 Cash ISA
- 1 Stocks and Shares ISA
- 1 Lifetime ISA
- 1 Innovative finance ISA
The total ISA investment in one tax year must not exceed £20,000 (tax year 2020/21)
Which Cash ISA is best for me?
We suggest you refer to our tables - Best variable rate ISAs from the whole of the UK market and Best fixed rate ISAs from the whole market to find out more.
Which Stocks and Shares ISA is best for me?
We have produced a comprehensive article regarding Stocks and Shares ISAs - Are Stocks and Shares ISAs really worth it? This article is well worth reading as it provides everything you need to know before you go ahead with a decision to open a Stocks and Shares ISA.
Once you have read the above article I suggest you read our article The best Stocks and Shares ISA (& the cheapest fund platform) which will provide you with the pros and cons of various fund platforms that provide Stocks and Shares ISAs.
If you are new to investing, then I would also suggest you read our article - Best and cheapest investment ISAs for beginners.
Also, In our article - ~The 6 best Stocks and Shares ISA we reveal our best buys based on cost, investment choice and ease of use.
Which Lifetime ISA is best for me?
If you are looking to invest in a Lifetime ISA (LISA) then I suggest reading our comprehensive articles Lifetime ISAs explained - are they the best way to save? and Compare the best and cheapest LIfetime ISA which provides a comprehensive review of a number of LISA providers for you to choose from.
Pension v ISA which is the better investment?
You can invest both in a pension and an ISA and they both offer a great way to save for your retirement. We have prepared a detailed comparison guide - Pension v ISA - which is the better investment? - which explains the difference between the two products and the benefits they provide.
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