If you want to make sure that the interest from your savings stays tax free forever, you can open a cash ISA. But how many cash ISAs can you have in one year? The answer is not as straightforward as you might think.
How many cash ISAs can you have in one year?
In general terms, you can open one cash ISA in any one tax year. The tax year runs from April 6th one year to April 5th another year. This is what the rules say:
- You can take out one new cash ISA every tax year. If you open a cash ISA before April 5th one year, that counts as the previous tax year. If you open a cash ISA on or after April 6th, that counts as the current tax year.
- You can pay into one cash ISA every tax year. If you have taken out a cash ISA in a previous tax year, but you continue to pay into it after April 6th, that’s counted as your cash ISA for the current tax year. You can’t then open or pay into a second cash ISA.
- You don’t have to be loyal. You don’t have to take out a cash ISA with the same bank or building society year after year. You can take out a cash ISA with a different bank or building society every tax year, if that’s what you’d like to do.
SAVVY TIP: One or two cash ISA providers let you take out more than one cash ISA in the same tax year – and it doesn’t break HM Revenue and Customs’ rules on cash ISAs. It’s possible because these cash ISA providers operate an ‘umbrella’ system, which means that they bundle together more than one cash ISA in the same tax year under one umbrella. Nationwide building society and Aldermore Bank are two cash ISA providers that I’m aware of that let you take out more than one cash ISA in the same tax year. This can be useful if you want to take out a fixed-rate cash ISA but don’t have enough money at the time to make use of your full cash ISA allowance. If you have more than one cash ISA in the same tax year, both have to be with the same bank or building society.
Cash ISAs and help to buy ISAs
You cannot have a cash ISA and a help to buy ISA in the same tax year. Help to buy cash ISAs are designed to help you save for a deposit for your home. If you already have a cash ISA (in the same tax year), you can transfer up to £1,200 into a help to buy ISA.
SAVVY TIP: There are exceptions. If you have a cash ISA and help to buy ISA with Nationwide or Aldermore Bank (or any other provider that has an umbrella approach to ISAs), you could keep your cash ISA and help to buy ISA. If you have more than £1,200 in a cash ISA that you’re paying into in the current tax year and you open a help to buy ISA, you’d have to transfer anything above the £1,200 you move into the help to buy ISA into a stocks and shares ISA or move it to an ordinary savings account.
You can read more about help to buy ISAs in these two articles: Ten things you need to know about the help to buy ISA and Help to buy ISAs – how do they work and who’s paying the highest interest rate?
Cash ISAs and lifetime ISAs
Lifetime ISAs will be introduced from April 2017. These are designed to help you save for a home or for your retirement. Under the rules for lifetime ISAs:
- You will be able to take out a cash ISA and a lifetime ISA in the same tax year. The advantage of a lifetime ISA is that you will get a 25% bonus from the government, as long as you meet certain conditions. You can read more about lifetime ISAs in my article called Lifetime ISA – how will it work and should you have one?
Transferring a cash ISA
Just as you don’t have to keep your savings in a savings account that’s paying a rotten rate of interest, so you can transfer your cash ISA to a different bank or building society if it’s offering a better rate of interest. So what are the rules on transferring a cash ISA?
- If you want to transfer cash ISAs from previous tax year (namely, where you haven’t paid in anything after April 5th) then you have the choice of transferring some or all of it to another bank or building society. This won’t count towards your ISA allowance and it won’t count as a second cash ISA.
- If you want to transfer a cash ISA from the current tax year, you have to transfer the whole lot. After you’ve open your new cash ISA and transfer your money, your old cash ISA will be closed.
- If you transfer money from a stocks and shares ISA to a cash ISA. If you do that, you won’t break the rules about having only one cash ISA in each tax year.
SAVVY TIP: If you want to transfer a cash ISA, you have fill in a cash ISA transfer form with the new cash ISA provider. Don’t close your existing cash ISA first as you’ll lose all the tax-free benefits. Once your cash ISA has been transferred, your old cash ISA will be closed. You can read more about transferring a cash ISA in my article called How to transfer your cash ISA
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