Thinking of opening a cash ISA? With the opportunity to earn tax-free interest on your savings, it can be a smart choice. But before you open an account, it’s important to know the ISA rules.
You can invest up to £20,000 in individual savings accounts (ISAs) this tax year.
That covers all types of ISAs, including cash ISAs, lifetime ISAs and stocks and shares ISAs. The current tax year runs from 6 April 2023 to 5 April 2024 — so if you’ve already invested this year, this amount of money is from your annual ISA allowance. Junior ISAs are an exception, and the limit for these this tax year is £9,000.
You can invest your £20,000 allowance across multiple types of ISAs, such as a cash ISA and a stocks and shares ISA. But you can only fund one ISA of each type during each tax year, so you cannot invest in two cash ISAs in the same year.
You can therefore only open a Shawbrook Bank cash ISA this year if you have not invested in a new or existing cash ISA on or after 6 April 2023, unless you are transferring that cash ISA to Shawbrook Bank. If you transfer an existing cash ISA to us, you can then make additional investments into the new account.
If you have invested in another type of ISA, such as a stocks and shares ISA, you can still invest in a cash ISA providing you don’t exceed your overall annual allowance of £20,000.
You can open a Shawbrook Bank cash ISA with a minimum balance of £1,000. The maximum you can invest in the current tax year is £20,000 (depending on your remaining ISA allowance). However, you can hold up to £250,000 if you are transferring previous tax years’ investments.
Several types of ISA contribute to your ISA allowance. You can choose to invest your allowance in one type of ISA or multiple.
Cash ISAs involve you investing money and receiving interest on this amount. Interest rates can be fixed or variable, and accounts can either be easy access, fixed term, or notice ISAs.
With an easy access account, you can withdraw money whenever you like (subject to minimum withdrawal requirements). But if you withdraw, you will lose the tax-free benefits on the withdrawn funds. If you reinvest the cash you have withdrawn, it will count towards your allowance twice — unless it’s a flexible ISA. We do not offer flexible ISAs at Shawbrook, so if you initially invest £20,000 and later withdraw £1,000, you could not reinvest this within the same tax year as this would exceed your limit.
With a fixed term ISA, you agree to lock your funds away for a set amount of time. Fixed term ISAs will usually pay a higher interest rate.
A notice ISA requires you to tell your provider in advance when you want to withdraw your money. Once you let your provider know you want to withdraw money, you’ll have to wait for your notice period to pass before you’re paid. You’ll agree to the length of your notice period when you first sign up for an account. This can vary, but you’ll typically earn a higher interest rate for a longer notice period.
The cash ISA limit for this tax year is £20,000.
Stocks and shares ISAs can pay higher rewards but usually carry greater risks. As the name suggests, your money is invested in stocks and shares. Your capital is at risk as these can go up or down.
You can invest up to £20,000 in a stocks and shares ISA this tax year.
Sometimes known as an IFISA, an innovative finance ISA involves peer-to-peer lending. With this kind of ISA, you invest your money through an online portal and agree to lend your money to individuals or businesses. It works by borrowers paying your money back with interest. This can offer a higher interest rate than traditional ISAs but comes with more risks, such as a borrower failing to pay.
For the 2023/2024 tax year, you can invest up to £20,000 in an innovative finance ISA.
Lifetime ISAs (also known as LISAs) can only be opened by adults aged 18-39, although you can continue to save in them until you’re 50. After then, you can keep the account open, but you can’t make any more payments into it.
These ISAs are for saving for two major life events — buying a property and retirement. Because of this, you can only withdraw money when purchasing a first home or reaching retirement (when you’re 60 or over).
This different type of ISA forms part of your overall allowance but has a smaller limit. You can deposit a maximum of £4,000 in each tax year. The government pays a £1 bonus for every £4 you save, so you can get a bonus of up to £1,000 a year.
Help to Buy ISAs closed to new savers in November 2019 but if you have an existing account, you can continue to save in it until November 2029.
Help to Buy ISAs are for saving for your first property purchase. With these, the government will pay £50 for every £200 saved up to £3,000 (which is £12,000 of savings). You will need to claim your 25% government bonus by November 2030.
You can deposit a maximum of £200 per month, which is £2,400 over the whole year.
Unlike the above, junior ISAs (also known as JISAs) are separate from your ISA allowance. This is because junior ISAs belong to the child, not the adult saving into the account.
They are available as cash ISAs or stocks and shares ISAs.
In the current tax year, the limit for junior ISAs is £9,000. The child cannot withdraw money until they turn 18 when the account automatically becomes an adult ISA.
You can invest up to £20,000 in an ISA in the tax year of 2023-2024. Any interest that you earn is tax-free. The ISA allowance renews every year, allowing you to build up your tax-free savings.
Although some types of ISA have smaller maximum allowances, they are cumulative to your total limit of £20,000 (excluding junior ISAs).
So if you maxed out the lifetime ISA, which has a £4,000 limit, you could only invest a maximum of £16,000 in your cash ISA. But you could invest up to £20,000 in a cash ISA if that was your only ISA investment for the year.
As mentioned earlier, you can choose to invest your annual allowance in one or multiple ISAs, but you can only invest in one of each type per tax year.
Shawbrook Bank only offers cash ISAs, but you can find out more about other types of ISAs available in our ISAs explained guide.
You can hold multiple cash ISAs, but you can only deposit money into one cash ISA per tax year. So, if you already have a cash ISA from a previous year that you’re not adding to, you can open a new account. But you can’t open or invest in two cash ISAs in the same tax year.
The annual ISA allowance is spread across different types of ISAs (e.g. cash ISAs, lifetime ISAs, etc.), but there is no limit to the number of ISAs you can hold — providing that you do not invest in more than one of the same type in the same year.
It’s worth knowing that the Help to Buy ISA is considered a cash ISA. This means you can’t open a cash ISA while saving into your Help to Buy ISA.
An ISA transfer enables you to move money from one ISA to another without losing your tax-free benefits.
To protect your ISA tax benefits and avoid duplicating any contributions to your allowance, you must carry out a transfer, not withdraw the money and reinvest it. If you withdraw your funds and redeposit them yourself, it will count towards your ISA allowance.
To transfer an existing cash ISA account from another provider to Shawbrook without affecting your allowance, you can request a transfer when opening a new account. Simply provide us with your current cash ISA details when you apply for a new cash ISA. We’ll then get in touch with your existing provider and complete the transfer for you.
You can also transfer your Shawbrook ISA to another Shawbrook ISA without affecting your allowance. This might be useful if you want to switch from easy access to a fixed term account. Just let us know and we’ll sort this out.
You can also swap from a fixed term to an easy access account, but this will incur a penalty .
If you’re considering transferring your ISA, make sure you go through the ISA transfer process to protect your tax-free allowance.
Want to use some or all of this year’s tax-free allowance to invest in a cash ISA?
At Shawbrook, we offer easy access cash ISAs and fixed rate ISAs.
With either option, you can open an account from £1,000 and deposit up to £20,000 in a tax year — ensuring your total ISA investments for the year do not exceed £20,000. If you are transferring previous tax years’ investments from existing cash ISAs, you can hold up to a maximum of £250,000 in a Shawbrook cash ISA.
Find out more about our cash ISAs and the rates available