As the new tax year has arrived, we wanted to make sure that you’re not fooled by the whispering myths about ISAs when weighing up your saving options.

Below we have listed the top five ISA myths, cutting through the misconceptions to put the record straight.

You can only have one cash ISA each tax year

The fact of the matter is - and potentially where the confusion may lie - is you get one ISA allowance per year which you can invest in cash or stocks and shares or a combination of both.

Some cash ISA providers, including Paragon, allow you to spread your allowance across different types of ISA to suit your savings goals. For example, you may choose a fixed-term ISA in exchange for a better rate of interest, but still want some cash you can access penalty free for emergencies, so hold some of your savings in an easy access account. By spreading your allowance over different accounts, you can maximise your returns.

You can’t take money out of your ISA and pay it back in

ISAs can be flexible, enabling you to put money in and take money out. 

After checking with your provider to ensure your ISA is flexible, as long as you take the money out and put it back in the same tax year, your annual allowance won’t be affected.

Flexible ISAs are there to give you more control over your ISA allowance, but you need to check and make sure there are no penalties if your ISA is fixed or a Lifetime ISA. It always pays to check!

Once you’ve chosen your ISA, you’re stuck with it

Leading on from the previous myth and flexible ISAs, you can of course transfer your ISA to another account and even to another provider.

If you’ve found a better suited ISA with a different provider, the only thing you must do is transfer the full subscription for that tax year. ISAs from previous tax years can remain with old providers or you transfer part or all of these to your new provider also.

You can spread your allowance across different ISAs, as we’ve mentioned, but you can’t spread your allowance across different providers until the following tax year.

ISAs aren’t worth the effort

This tax year’s allowance is £20,000 and the Personal Savings Allowance (PSA) enables you to earn interest on your savings income without paying tax.

Basic rate taxpayers can earn up to £1,000 in interest each year tax-free, and higher rate taxpayers up to £500. You’ll pay income tax on any interest above these amounts, unless your savings are in a cash ISA, in which case all interest will be tax-free.

Admittedly, you’ll need to build a sizeable savings pot to start paying tax, but your ISA can grow fairly quickly if you are dedicated to savings or you receive a cash windfall that can kickstart your ISA savings.

ISAs are only available to UK citizens

If you are a UK taxpayer, you can benefit from an ISA allowance. There is often a perception that ISAs can only be taken out by British passport holders, but if you pay tax in the UK, you can take out an ISA.

For more information about ISAs visit Paragon’s ISA FAQ section.