More than two-thirds of people are in danger of mistaking cash Isas for tax-exempt instant access accounts, according to research by Family Assurance.
The survey of Family's 600,000 members shows almost 70 per cent believe cash Isas work in the same way as an instant access account, allowing savers to make regular withdrawals and deposits.
It highlights the problem of low awareness of Isa rules among the Government's target audience for the plans. The maximum tax-free allowance for a cash Isa is £3,000 in the first year, dropping to £1,000 a year thereafter.
Once the maximum allowance has been deposited, savers can make withdrawals from the account but a saver can not top up the cash Isa after a withdrawal as the full allowance for the tax year has been used.
Family Assurance marketing director Barry Chambers is warning that the lack of awareness could lead to misbuying.
He says: “It is clear that awareness of Isas with the general public is very low. Of those who did know what a cash Isa is, seven out of 10 had little clue about tax-exempt rules.
“We are keen for the public not to swallow the hook of tax breaks without fully understanding products or their pitfalls. There is massive confusion out there and this usually results in apathy or misbuying.”