Making use of an ISA is a no-brainer. UK tax residents get a £20,000 allowance every tax year to save or invest with tax-free interest and returns. It can feel like there are a lot of complicated rules around ISAs, and sometimes things change. So, we’re bringing you up to speed on the myths that are commonly circulated around ISAs.
 

1. I don’t need an ISA — I’m covered by my Personal Savings Allowance

The Personal Savings Allowance gives basic-rate taxpayers £1000 tax free interest on their savings each year (£500 for higher-rate taxpayers). If your annual interest on savings does not exceed this, you might be thinking an ISA is not worth your time.

However, sometimes life throws you unexpected money. Maybe you inherit a cash sum from a loved one, receive an unexpected gift, or win big on the Chip Prize Savings Account. Picture this: You inherit a lump sum which is £50,000 after tax, but now you want your money to earn some interest.
 

Scenario 1: You don’t use an ISA

• You’re a higher rate taxpayer, and already saved £10,000 this year in an easy access savings account at 5% interest. It earned £500 — using all of your interest allowance.
• You save your lump sum in the same account, and it earns £2,500 in interest. This is now liable to 40% tax, as you’ve used your £500 allowance.
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Scenario 2: You use an ISA

• You’re a higher rate taxpayer and saved £10,000 this year, but because you used a tax-efficient Cash ISA, the £500 interest you earned is tax free. 
• You can save an additional £10,000 of your lump sum into your ISA, using the remainder of your £20,000 tax year allowance, and earn a further £500 tax-free.
• The remaining £40,000, saved in an easy access savings account at 5%, would earn £2000 interest, and only £1500 would be liable to be taxed at 40%.

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By using an ISA, you would have saved £200 in tax in the first year. Every year you continue to use your allowance, this tax saving will increase significantly. 

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2. I don’t have enough money to start 

Many people think ISAs require loads of cash to get started, and it's true that some providers require you to make a minimum deposit and monthly contribution. With Chip, you can start saving or investing with as little as £1, and we won’t hold you to a minimum monthly contribution. 

If you open a Chip ISA, you can enjoy our autosave feature, where your spare change is automatically saved or invested. You decide how much spare cash to autosave, and you can take a break whenever you need to. Starting small still gives you the full tax-free benefits of an ISA, and thanks to the power of compounding, even modest contributions can grow significantly over time. The key is consistency — small, regular deposits can grow into a substantial pot. Charges may apply.

If you already know how much you’d like to put away each month, we’ve made things simple with Chip’s recurring deposits feature. You can set this up to land into your Cash ISA, or to be invested directly into a chosen fund within your Stocks & Shares ISA. So you can build savings and investments into your monthly budget, without the extra admin. 

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3. Transferring an ISA is complicated

Moving your ISA doesn’t need to be complicated if you’re looking to make a change. Using the ISA transfer process, you can move ISAs from one provider to another, and it does not affect your ISA allowance. 

With Chip, ISA transfers are super simple and take just a few minutes to request. We won’t charge you any hidden fees to move an ISA over to Chip, and with our flexible ISAs, you can enjoy unlimited, penalty-free withdrawals. 

Non-flexible ISAs can require a bit more commitment to putting your money away, as any money you put back in that you’ve withdrawn, will count towards your £20,000 allowance. If you need access to your funds for an unexpected spend, you can withdraw and redeposit from your Chip ISA without it affecting your allowance during the same tax year. 

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4. Stocks & Shares ISAs are too risky

Investing using a Stocks & Shares ISA always carries some form of risk, but the level of risk involved is not equal across all investments. Current trends in retail investing, such as cryptocurrency and zero-commission share trading, have fuelled criticism of investing as being closer to gambling than a long-term saving strategy.¹ Bad habits, fueled by these trends, have resulted in financial losses for over 70% of DIY retail investors.² 

At Chip, we’ve focussed our investment offering on investment funds. These funds are made up of multiple assets, and focus on long-term growth and built-in diversification. 

Historically, the longer you can stay invested using funds, your chances of losing money fall dramatically. Let’s use the example of investing in the US stock market between 1926-2023.

At 5 years invested, your probability of loss was 11.7%. After 10 years invested this fell to 4.9%, and after 15 years — 0.3%.³ 

Sources: ¹MorningStar, ² Financial Times, ³ WealthFront

When investing, your capital is at risk. Past performance is not a reliable guide to current or future performance, and should not be the only thing you consider when selecting a fund. 

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5. I can’t open more than one ISA

This myth used to be true, but as of April 2024, you can open and contribute to multiple ISAs of the same type within the same tax year. For example, you could open and fund more than one Cash ISA or more than one Stocks & Shares ISA, simultaneously. 

The amount you can contribute is still confined to the £20,000 limit across all ISAs. So, you can’t contribute £20,000 to each ISA, it has to be spread out. 

The exceptions to this rule would be Lifetime ISAs — where you’re only allowed one per tax year, and Junior ISAs — where you’re only allowed one of each type (Cash and Stocks & Shares) each tax year. 

Some providers won’t allow you to open more than one type of ISA with them, but with Chip you can have your Cash ISA and Stocks & Shares ISA all in one place, working together.

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Chip Prize Savings Account T&Cs, eligibility criteria and minimum average balance of £100 applies. For current prize values, entry and eligibility criteria and how to opt-out see our full terms. FSCS limits of £85,000 apply to eligible deposits. Prizes are not eligible for FSCS protection. Please note that this account does not offer interest.

Your Chip Cash ISA is a cash ISA provided by ClearBank Limited. ISA limits apply. Deposit up to £20k per tax year. Chip does not provide tax advice or financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future. 

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Seccl Custody Limited is the ISA Manager for the Chip Stocks and Shares ISA. A monthly or annual ChipX membership is required for certain funds selected within a Stocks and Shares ISA. Fund management charges apply. ISA limits apply. Invest £20k per tax year.