All savings deposited in ISAs remain tax-free as long they remain under the coveted veil of an ISA. But savers can transfer ISA funds from one provider to another, provided they follow the correct steps.
Why might I transfer my cash ISA savings?
Poor rates - Many savers have become apathetic and pay little attention to the rates they receive on their savings. Therefore, it has become common practice for banks to offer bonus rates on instant-access accounts that crumble away after an introductory period.
After 12 months, rates can instantly fall to a fraction of what they offered before. The majority of instant-access cash ISAs are constructed so that savers only benefit if they transfer their ISAs regularly. But if you're prepared to transfer correctly, you could benefit from all of these bonus rates.
No impact on allowance - Correctly transferred ISA funds do not count towards a saver's annual ISA allowance.
Keeping savings safe - Savers' deposits are guaranteed up to £85,000 per person per institution. If you have exceeded this limit with any one banking group, it may be worth transferring some of your ISA deposits elsewhere to ensure that all of your funds are protected.
How do I organise a transfer?
It is important to follow the correct procedures when applying to transfer your ISA.
- Apply for the new provider to arrange the transfer. This ensures that all of the money remains tax-free and does not constitute part of your annual allowance.
- Provide details of any old ISAs that you would like to transfer in the application for the new ISA.
What are the regulations on transferring cash ISAs?
The regulations are surprisingly flexible.
New ISAs - Transferring an ISA opened in the same tax year is possible, though all of the funds must be moved since individuals can only contribute towards one cash ISA in any financial year. This ensures that savers are not restricted to any one provider for the duration of the tax year.
Old ISAs - ISAs opened in previous tax years can be handled with greater flexibility. Old ISAs can be fully-transferred or part-transferred to different providers, if you choose. This may be a useful ploy for those with a large volume of savings who wish to remain beneath the guaranteed compensation limit of £85,000 for any single institution.
Between Cash and Stocks - Cash ISA and stock ISA funds can be transferred in both directions.
Transfers that are carried out correctly do not count as new contributions towards an ISA. This will allow you to transfer an existing ISA as often as you like, though you can still only add new funds to one in any given tax year.
How long does a transfer take?
Institutions should complete the transfer of funds within 15 working days, and new ISA providers are obliged to pay interest from the point at which the old provider stops.
Some providers, such as the Nationwide, generously pay interest from the date of application, which can add up to 21 extra days of additional interest.
Do I lose out in interest?
Though it seems daunting, the system enables the transfer of instant-access ISAs between providers without loss to savers.
If the bonus rate for an instant-access ISAs expires after 12 months, the point at which the rate falls could be the best time to transfer. [See Savings and Bonus Rates for more details].
For fixed-rate products, however, it is often worth waiting until the ISA matures, given the steep penalties for early withdrawals.
Make the most of your tax-free savings allowance through Which4U.
- If a transfer goes wrong or is delayed, it may be that the transfer request was not received by your old provider. Seek their advice in the first instance.
- Cash ISAs in UK regulated banks are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person per institution. For more details, see Secure Savings and Compensation.