6 ISA myths debunked

Last updated: 6 April 2021

Debunking common ISA misconceptions

Some people think that ISAs (Individual Savings Accounts) are complicated, or you need a large amount of money to open one, or there's no point having one at all! But they're not as confusing as they might seem.

What is an ISA?

An ISA is simply a tax-free account for your savings. There are different types of ISAs – Cash ISAs (which we offer), stocks & shares ISAs, innovative finance ISAs, Lifetime ISAs and Help to Buy ISAs.

There are many common misconceptions about ISAs, and we want to set the record straight.

Myth 1 - I can’t move my money once it’s in an ISA

You can transfer cash ISAs as often as you like. Just remember that you have to transfer the whole amount if it’s this year’s ISA.

If you’re transferring ISA savings from previous tax years, you can transfer as much or as little as you want. As long as you don’t pay into this account after the transfer, it doesn’t impact your current year’s ISA allowance.

Transferring your ISA could mean that you face certain penalties – for example, you might have to pay transfer fees. So you should always check the terms and conditions of the account. And make sure that your current provider allows for transfers and that your new provider will accept them.  

Myth 2 - I can only have one ISA

It’s true that you can only pay into one cash ISA at a time, per tax year. But that’s not quite the full story.

You can actually split your ISA allowance between the different types of account – cash ISA, stocks & shares ISA, innovative finance ISA, Lifetime ISA and Help to Buy ISA.

You can choose to put your whole allowance into one ISA, or you can mix and match between the different types. Just remember that the maximum you can put into a Lifetime ISA is £4,000 a year.

The ISA allowance is capped at £20,000 for 2021/22. Here’s an example of some different options.

You could put the full £20,000 into a cash ISA


£8,000 in a cash ISA

£8,000 in a stocks & shares ISA

£4,000 in a Lifetime ISA


£10,000 in a cash ISA

£10,000 in a stocks & shares ISA

It’s completely up to you and your personal preference.

Please remember that stocks and shares and any income derived from them can rise and fall in value. You may not get back the full amount of your investment.

Myth 3 - The Personal Savings Allowance means I don't need an ISA

The Personal Savings Allowance means most people in the UK can earn up to £1,000 a year in savings interest without having to pay any tax on it.

But remember that you never have to pay tax on the interest you make with an ISA. And any interest you earn won’t count towards your Personal Savings Allowance. As long as your money is in an ISA, it’ll have genuine tax-free status.

Plus, if you’re a higher rate taxpayer, your Personal Savings Allowance is actually lower. You’ll only be able to earn £500 in savings interest tax-free. Or if you’re an additional rate taxpayer, it’s £0.

Myth 4 - I can't touch my money once it's in an ISA

Access to your money all depends on the type of ISA you’ve chosen and its terms and conditions.

Some accounts let you withdraw money as many times as you want. Other accounts are more ‘fixed’. So withdrawing your money could result in a penalty, such as loss of interest. It’s important that you understand these differences before you commit to an account.

But what happens if you do need to withdraw cash from your ISA? Again, it all depends on the account you’ve chosen. But fixed cash ISAs won’t let you return the cash you’ve withdrawn.

  • For example, you put £10,000 into a fixed cash ISA during the 2021/22 tax year. You then decide to withdraw £5,000. Even though you only have £5,000 left in the account, you can only invest a further £10,000 during the 2021/22 tax year.

Myth 5 - I need a large amount of money to open an ISA

We know that saving isn’t always easy. That's why some ISAs can be opened from as little as £1. So you really don’t need a large amount of money to open an ISA.

Of course, the more money you contribute to your ISA, the more tax-free interest you'll make. And remember that if you don't use your full ISA allowance for the current tax year, you'll lose it.

Myth 6 - I should wait for the new tax year to open my account

If you want to take advantage of a cash ISA then there’s no time like the present. As long as your cash is in an ISA, it’ll remain tax-free. And if you don’t take out your cash ISA before the end of the tax year, you’ll miss out on the current allowance.

When the new tax year begins, you might need to take out a new ISA. Or you might be able to pay into your existing one, depending on your account.

Interested in opening a cash ISA? Take a look at our range today.

View our cash ISAs


This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.