Five ISA myths - busted

As a tax-efficient way of investing, ISAs are second-only to pensions. The ability to grow your money free from income and capital gains tax, coupled with the flexibility they offer, the range of investment options available within an ISA and the fact that every eligible adult has the same annual ISA allowance, regardless of whether they’re a higher rate taxpayer or a non-taxpayer, means they are, quite rightly, the first port of call for anyone wanting to grow their hard-earned money.

However, despite having been around for a while now, some investors are still a little unsure of some of the rules around them. Here are some of the most popular myths surrounding ISAs - and the facts you need to know.

1. You have to choose between cash or shares
   
   No, you can have both and mix them up however you like, as long as you stay within the annual allowance, which is £20,000 in the current tax year. You can also change your mind and transfer money from a cash ISA into your stocks and shares ISA and vice versa. The golden rule is to keep the money inside your ISA. As long as the money stays within an ISA wrapper you can save or invest it as you choose and it will retain its tax-free benefits.
2. You have no control over what you invest in within your ISA
   
   You actually have total control. With a Fidelity ISA you can choose exactly what you invest in and even where in the world you invest. So, whether you want to invest in gold, Japanese equities, US small caps or FTSE 100 giants you can, or you can opt for a mix of all of the above. It’s entirely up to you. Our Select 50 list of preferred funds makes building a diversified portfolio easier.
3. You can only have one ISA with one provider
   
   The rules for ISAs will be changing on 6 April 2024. From the start of the new tax year, it will be possible for investors to make multiple subscriptions to the same type of ISA in one tax year. This means that investors will be able to spread their investments over different providers. For example, if you wanted one stocks and shares ISA for longer-term investments and a separate ISA for more regular trades, the incoming ISA changes will enable this level of flexibility. However, it can be easier to keep track of your investments and possibly cheaper too if you consolidate them into one. And, transfer your ISAs, or pensions or other investments, to us by 1 April 2024, and you’ll get £200 to £2,000 in cashback. Exclusions and T&Cs apply.
4. You need a lump sum to invest
   
   Wrong again. While investing a lump sum is a great way to make your money grow, you don’t need a lump sum to get started. With a Fidelity ISA you can invest as little as £25 a month. That regular investment will soon grow and better still, you can keep adding to it, making it an easy way to save, with no great sacrifice required.
5. Once investments in your ISA hit the annual allowance you start paying tax
   
   This is totally incorrect. This year’s annual ISA allowance of £20,000 refers to the maximum amount you can invest within your ISA in the current tax year. That figure though doesn’t include any growth in your investments, nor does it include any money you’ve invested in previous tax years. And come 6 April this year you’ll get a brand new £20,000 allowance to invest, enabling diligent investors to grow a decent chunk of money, tax-free, each new tax year.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.