Can I split my funds between a fixed-rate ISA and an easy access ISA?

Question: I love cash ISAs and hope they stick around. I’ll be receiving a lump sum soon and want to put some of it into next year’s £20,000 ISA allowance. I prefer cash ISAs but need some flexibility since my rental income isn’t always steady. Can I split my funds between a fixed-rate ISA and an easy access ISA as there are times that my properties are empty, so I might need access to some cash? 

I’m a fan of cash ISAs too! So, I’m worried that there’s been a lot of speculation recently that the cash ISA allowance is to be either scrapped or at the very least restricted – some are saying to as little as £4,000 a year. With cash ISAs remaining as one of the best ways to earn tax-free interest for savers, I hope that these rumours won’t come to fruition, but we’ll just have to wait and see.

Now, onto your question. Thanks to rule changes in April 2024, you should now be able to split your £20,000 ISA allowance into several cash ISAs within the same tax year. That means you could open both a fixed-rate cash ISA and an easy-access cash ISA, as long as you don’t exceed your total annual allowance. However, it might not be as simple as you’d hope!

A fixed-rate ISA usually offers a better interest rate in return for locking your money away for the chosen term — ideal if you don’t need access to those funds for a while. Plus, it protects you from any future rate cuts that may happen. In contrast, an easy-access ISA gives you the flexibility to withdraw funds if you need them for rental gaps or unexpected expenses, although the interest rate is variable and could be cut if interest rates fall over time, as is expected.

However, while the updated rules now allow this mix-and-match approach, not all providers have adopted them in practice.

Before the 2024 rule change, you could only pay into one of each ISA type per tax year—so, for example, one cash ISA and one stocks and shares ISA. There was an exception called the ‘portfolio ISA’ rule, which allowed multiple cash ISAs with the same provider in a single tax year, but only a handful of providers, such as Paragon, Aldermore, Charter Savings Bank, Nationwide and Ford Money, offered this option.

With the new rules, you might assume you can now open multiple cash ISAs with different providers or the same provider within a single tax year. But here’s the tricky part - ISA providers aren’t required to follow the new rules. Most now allow you to open another cash ISA even if you’ve already funded one with a different provider in the same tax year. However, this doesn’t necessarily mean they allow multiple cash ISAs under one roof.

If you’re after the best rates for both fixed and easy-access ISAs, chances are they won’t be from the same provider anyway. So, to make the most of your allowance; it’s worth picking the best rates available rather than worrying about whether one provider allows multiple ISAs.

And be aware that you should always check the small print on easy-access ISAs. Some have short-term bonuses that boost the rate initially but drop after a few months. Others limit the number of withdrawals you can make before penalties apply.

Another key point - if you expect to dip into your ISA savings, check whether the ISA is flexible. With a flexible ISA, you can withdraw money and put it back within the same tax year without affecting your allowance. If it’s not flexible, any money you take out still counts toward your annual limit when you replace it.

For example, if you put £10,000 into your cash ISAs during the 2024 to 2025 tax year but then take out £3,000, the amount you can put in during the same tax year is £13,000 if your ISA is flexible (the remaining allowance of £10,000 plus the £3,000 you took out). But if your ISA is not flexible, you can add just £10,000 (just the remaining allowance).

Whilst in theory the new rules should make opening ISAs simpler than ever before, the bottom line is that whilst things should be more flexible now, inevitably this isn’t necessarily the case, so you need to ask your existing and potential ISA providers about which of the rules they have adopted or are looking to adopt. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts mentioned in this article are accurate and correct as at the time of writing.