Common ISA mistake a lot of Brits ‘don’t realise’ – ‘the rules have changed’ | Personal Finance | Finance

Experts have shared one ISA mistake that could mean Brits aren’t making the most of allowances. ISAs(Individual Savings Accounts) are an important savings tool, but many people mistakenly believe you can only have one at a time.

Dan Coatsworth, head of markets at AJ Bell, said: “A lot of people don’t realise the rules have changed on ISA ownership. Historically, you could only pay new money into one ISA of each type in a tax year. There are now no limits on the total number of ISAs you can open in a tax year.” He added: “The only exceptions are Lifetime ISAs and Junior ISAs, where you can only pay into one account of each type, every tax year.”

“If you want to make use of this flexibility, just make sure you are keeping track of what you’ve paid in and where, to make sure you don’t go over your ISA allowance.”

But this is not the only mistake Brits are making. He also says that you could be picking the wrong type of ISA.

The expert says you may assume ISAs are a one-size-fits-all account. That’s not the case, as you need to pick the one that works best for you.

There are six types of ISA, which means it’s easy to pick the wrong one for your savings or investments. 

While you may have chosen a Cash ISA, if you’re saving for the long term, an investment ISA could be a better choice.

You can only hold cash in a Cash ISA, whereas investment ISAs can hold a range of shares, funds and bonds, Mr Coatsworth said.

He added: “You may have picked a Stocks and Shares ISA to save for the deposit for a first home, but you could have benefitted from the 25% government bonus available on the Lifetime ISA. 

“Everyone loves free money, but only Lifetime ISA holders get the extra cherry on the cake.

“Equally, if you’re saving for your child, paying into a Junior ISA might be better than saving the money into your own ISA. 

Ensure our latest news headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as Preferred Source in your Google search settings.

“That’s because your child gets their own allowance in a Junior ISA, so there is no reason to share your ISA allowance with them.”

Mr Coatsworth also noted the importance of making the most of your ISA allowance.

Everyone over the age of 18 can pay up to £20,000 into their ISA each tax year, with the Lifetime ISA capped at £4,000. 

You should make sure you’re making the most of this allowance as much as possible, as if you don’t use it, you lose it – you can’t carry forward any unused allowances to future years.

He added: “Investors with spare money to save and any unused ISA allowance for the current tax year should consider using it before the 5 April deadline.”