An ISA (Individual Savings Account) is an investment vehicle regulated by the Financial Conduct Authority in the United Kingdom.
The ISA allows people to save up for their future without paying taxes on the returns.
An individual can open an unlimited number of additional cash or stocks and shares ISAs provided that they are with different providers.
Individuals are only eligible to have one cash ISA, but if they also have stocks and shares ISA, they can become entitled to a second tax-free allowance between them.
It means that an individual can have two separate accounts with £11,520 across both accounts (£14,000 from April 6th), although these allowances are being phased out progressively until 2020.
Two accounts would also be allowed if one were a cash ISA and the other stocks and shares.
Investors can choose from many different savings accounts that vary in their annual percentage yields (APY), risk, short-term/long-term benefits, tax exemptions, etc.
What to consider
When choosing an account, investors should consider the following factors:
- including preferred tax treatment
- financial risk tolerance
- investment horizon
- time available for monitoring investments
- investment costs associated with the account
- government restrictions on withdrawals or contributions before retirement age
- Or other situations such as giving money to minors
Depending on your needs, you may find it beneficial to have multiple ISAs open at once.
With so many choices available, there is no reason why someone cannot have more than one ISA at any given time.
It is impossible to open two cash ISAs in the same tax year, perhaps unsurprisingly. Individuals 16 years and older with an annual income of less than £15,000 are eligible for a cash ISA.
It means that an individual can only have one cash allowance per year regardless of how many providers they decide to work with or whether they intend on opening more than one type of account simultaneously.
Opening new cash ISAs
If you are already holding a cash ISA, you must transfer the balance to another provider before opening up a new cash ISA.
The Financial Conduct Authority provides further information about what happens if your cash ISA’s cash is in stocks and shares or if it has matured.
Investors looking to purchase a house or make a large purchase shortly may also wish to consider placing their investments into a cash ISA.
While this may limit your investment returns over time, it guarantees that it will protect any money you have saved up from any capital gains tax (CGT).
Purchasing your first property is considered a high CGT event and could cost an individual £20,000+ on the profits they’ve accumulated if they do not hold them within an ISA.
It makes opening multiple cash ISAs especially beneficial for those looking to buy a home or save for other long-term expenses.
Cash ISAs can help save enough money for these significant purchases while also protecting yourself from the extra tax that would have been levied on the capital gains.
Individuals can have multiple ISAs as long as they are with different providers and do not exceed their annual allowance.
They cannot open more than one cash account within a tax year but can store up to £20,000 across all ISA accounts – including cash – without being subject to any additional taxes.
It is not possible to open two cash ISAs in the same year regardless of how many total accounts you may hold at once.
Investors looking for more flexibility should consider having multiple accounts, particularly if they plan on making a house purchase or significant purchase shortly, as these events incur high levels of CGT taxation.
Cash ISAs allow those with lower incomes to accumulate money without paying any taxes and can be beneficial in saving up for a house or significant purchase and protecting yourself from future CGT.