Financial literacy is a hard-learned thing, but is nothing short of essential for charting a safe path through the costliness of adult life. There are myriad ways to manage money, from savings accounts to investment platforms and beyond, but one of the simplest and most-misunderstood products is the ISA: an account that offers high interest or returns with a handy tax exemption. What are the most common myths around them, and what is the truth?
Myth 1 – I Can’t Touch My Money Once in an ISA
Due to the form of some ISA accounts, it is a common misconception that ISAs are firm and secure financial instruments, which ‘swallow’ your money and render it inaccessible for long periods of time. This is, in a manner of speaking, the case for a small portion of ISA products on the market, but by no means describes all ISA accounts.
The instances in which this is even remotely true are instances where a given ISA is ‘fixed-rate’; money is locked in for a pre-set period of time, in order to guarantee a higher rate of interest. There are many easy-access ISAs with no such stipulations, though.
Myth 2 – I Can’t Move Money Once in an ISA
In relation to this, a further misconception abounds regarding ISAs and monetary freedom. There are those that think that money can’t be transferred from a given ISA account, much in the same way that money might not be easily withdrawn in Myth 1. But this isn’t true either; you can easily transfer money from your ISA – the caveat being that you’ll have to transfer the whole amount if it’s a present-tax-year ISA account, and not savings from a previous year.
Myth 3 – I Can Only Have One ISA
This myth has a grain of truth to it. You can indeed only pay into one cash ISA each tax year, but this by no means describes the whole story. There are different kinds of ISA, from cash to stocks and shares and even the LISA, which can be a powerful way in which to subsidise the buying of a first home. As a consumer, you can have and pay into one of each of these, provided the total you pay in in a tax year remains below your ISA allowance.
Myth 4 – I Need Lots of Money to Open an ISA
Finally, for some the use of an ISA can seem like a trapping of the rich; indeed, one of the more pernicious rumours surrounding ISAs is that you require a large amount of money in order to open one. Nothing could be further from the truth; there are limited cases in which an minimum initial deposit is required, but these cases are linked to specific banks and specific longer-term benefits such as higher interest. There are many ISAs that can be opened with as little a deposit as £1!
