When we look at our finances, we should look at both the future and the here and now.
Ensuring we have enough to live on currently is essential but having a financially stable future starts now. Many of us have savings accounts or money-saving apps as places we deposit money as and when we are able to.
If you have an ISA, do you know what type it is and what your ISA allowance is?
Let’s answer the question of how much can you put in an ISA each year?
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How much can you put in an ISA each year?
Asking the question of how much can you put into an ISA each year is a good one. We all need to know how much can be saved in the places we choose to save our money.
The amount you can put into an ISA each year is called your ISA allowance.
It runs through the financial year and is currently £20,000. From 6 April 2027, the cash ISA part of this allowance falls to £12,000 a year for under-65s, while the overall £20,000 limit across all your ISAs stays the same. If you don’t use this allowance, it doesn’t roll over into the next financial year. It’s a use-it-or-lose-it situation.
What ISAs can I use my allowance with?
If you haven’t yet organised your ISA, many ISA products are available, from many different providers.
You’ll find cash ISAs, stocks and shares ISAs, innovative finance ISAs, Junior ISAs and lifetime ISAs (also known as LISAs).
When researching the right product, look at the terms associated with the account and any fees included. You should also look at the past performance of ISAs to see how much your investment could make.
How to split my ISA allowance?
Your ISA allowance is free to be used how you see fit. However, there are a few limitations put in place.
You cannot pay more than £20k a year into ISA products. There is also a cap of £4000 for lifetime ISAs. This £4k is part of the £20k allowance.
Since April 2024 you can pay into more than one ISA of the same type in the same tax year, for example two cash ISAs, as long as your total contributions stay within the £20,000 limit.
Aside from that, you can though, choose to split that £20,000 allowance across ISA products.
So an example of what you could do would be to pay:
- £4000 into a lifetime ISA.
- £10000 into a stocks and shares ISA.
- £6000 into a cash ISA.
This would use your entire £20k allowance.
If you instead chose to pay:
- £4000 into a lifetime ISA.
- £9000 into a stocks and shares ISA.
- £5000 into a cash ISA.
This would be a total of £18k. The £2000 you haven’t used would vanish at the end of the financial year when your ISA limit resets.
Top Lifetime ISAs
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Tax benefits and government bonuses
ISA products are tax-efficient ways of saving money. You don’t pay tax on any interest, investments or bonuses that come from your ISA. They can be a great way to save money without the worry of paying taxes on anything earned.
Government bonuses
Some ISA products come with government bonuses. The help to buy ISA is no longer available to open, however, if you have one, there is a potential Government bonus of up to £3,000.
To get this, you would have to save £12,000 into the ISA.
Lifetime ISAs also have a Government bonus connected to them. We’ve already said there is a maximum of £4,000 you can put into this type of ISA each year.
You’ll earn a 25% bonus on anything you put in there. So you can turn £4,000 into £5,000 each year with this £1,000 Government bonus.
Lifetime ISAs can run for a lot longer than Help to Buy ISAs as they provide £1000 in bonuses every year you have maxed out the £4000. The Help to Buy ISA has it’s limits which doesn’t make it as attractive.
Are ISAs safe?
You need to ensure that any savings you make are protected under the Financial Services Compensation Scheme (FSCS). The Government backed scheme protects up to £120,000 per eligible person, per bank, building society or credit union.
Some banks are connected, so you might want to consider setting up accounts with different providers so your money is protected by the FSCS. You don’t want your money to be at risk if a bank fails.
Consider an emergency fund first
Withdrawing from an ISA often comes with fees and can eat into your annual allowance. If you put all your savings away into an ISA, what do you do if something was to happen to you or your family?
Perhaps you lose your job or need some cash for an expensive car repair. It could be that you need to put money towards your health which is priceless!
As well as looking at maximising your ISA allowance, you should also look at an emergency fund that can support you, just in case.
This should be at least 3-6 months of your basic outgoings. This would include your mortgage payments or rent, utility bills and food for the table.
That way you can concentrate on the situation at hand without worrying about the financial impact.
Other ways to save
You might look at ISAs and decide that they are not for you. There are other ways to invest your money and make it grow.
Take a look at easy-access savings accounts which are getting better and better in terms of interest rates.
The great thing about easy access is that you can get your hands on your money when you need it, which could be essential in the current financial climate.
Some current accounts give a decent interest rate, or you could look into locking your money away for a year or more for a higher rate.
Unfortunately as a couple you cannot open a Joint ISA to save together but there are ways you can look to combine your ISA allowance to make it go further as a household.
ISA Allowance FAQs
Conclusion
Out of the people who have ISAs, less than 15% use their entire ISA allowance. Now you know how much you can put into your ISA every year, you can start working towards maximising that allowance.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
