ISA Transfer Rules
ISA rates can change all the time, unless you have a fixed rate, while even fixed rate deals come to an end, so it is useful to know about ISA transfer rules.
You can make the most of your ISA allowance by transferring to a new provider or account if you’re no happy with the ISA rate you’re receiving.
If you’re not getting a competitive rate on your ISA, or your fixed rate is about to end, then you can transfer your ISA savings and investments into a different ISA. This will not count towards your annual ISA allowance, so won’t affect how much you can pay in to an ISA for that tax year.
For cash ISAs, you can transfer the money into another cash ISA, or, if you are looking for potentially higher gains, you can transfer the money into a stocks and shares ISA. The current year’s allowance can only be transferred whole, and cannot be split into two.
The ISA transfer rules also state that while you can transfer from cash to shares, you cannot transfer money from a stocks and shares ISA into a cash ISA. It’s a one way street. So, if you have already paid in your total ISA allowance for the year, and you do not want all your tax-free savings in stocks and shares, then you might want to consider leaving some savings in a cash ISA.
If you are transferring a current year subscription from a cash ISA to a stocks and shares ISA it is treated as if that amount was always invested as a stocks and shares ISA. This means, as long as you are within the current annual allowance, you can open a new cash ISA during the same tax year.
By keeping some savings in a cash ISA and some in a stocks and shares ISA it can help diversify your investments, with some savings in safer cash deposits and some invested for higher potential returns, but greater risk in stocks and shares.
While most ISA providers allow transfers in, some don’t. And, under current ISA transfer rules, you might be charged a penalty by your current provider – this is becoming less common, but check with your provider, as the fee could potentially offset the benefit of transferring to an ISA with a better rate.
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What is an investment ISA?
How do I choose an investment ISA?
Before you open an investment ISA, make sure that:
- Your debts are under control – you’ve either paid them off or have affordable arrangements in place to do so.
- You have emergency savings that you can access easily if something unexpected occurs – if your car breaks down or you’re made redundant, you’ll need savings that you can use straight away.
If you’re very new to saving and don’t yet have a basic emergency fund, you may find that a cash ISA is more suitable for you at this stage. Once you’ve built up some accessible savings in this way, you might then want to consider an investment ISA.
Investment ISA tips for 2024
- You should be prepared to invest for the medium to long term with a investment ISA – for example, for five years or more.
- If you think you might require access to your cash in the next couple of years, a investment ISA may not be the right choice for you. Share prices can be volatile – and so if you were to withdraw your investment in the next twelve to eighteen months, you could end up with less money than you started with.
- Different investment ISAs have different investment options. These range from as little as £10 per month (e.g. through a fund) to a specified minimum investment (e.g. £500).
- Some ISA providers will give you online access to your account, allowing you to see the investment performance of your ISA and keep up to date with any charges incurred.
- If your investment ISA isn’t performing as well as you’d like, you will usually be permitted to transfer it another provider. To do this, speak to your new ISA manager who will arrange the transfer, allowing you to avoid losing any tax benefits by withdrawing your cash.
- You can transfer shares you get from an HMRC-approved SAYE (save as you earn) scheme run by your employer, or a share incentive plan, into a investment component of an ISA without incurring capital gains tax, up to your annual ISA allowance.
- You will not be able to transfer any existing non-ISA shares, or shares you’ve inherited, into an investment ISA.
- With an investment ISA, there is greater long-term growth potential than a cash ISA – however, bear in mind that the value of your investment can go down as well as up.
- If you have an investment ISA from a previous tax year, you’re permitted to move this into a current investment ISA or split it between more than one investment ISA.
- If you want to open a Junior ISA (JISA) for your child, you can also invest in investment on their behalf up to a maximum of £9,000.
How does a stocks and shares ISA work?
Your personal allowance for a stocks and shares ISA is £20,000 for the 2024/25 tax year. Investing this amount would use up your full ISA allowance, but if you prefer, you can divide your ISA allowance between a cash ISA and a stocks and shares ISA.
You could, for example, put some of your allowance in a cash ISA and the remaining balance can be invested in stocks and shares.
When considering a stocks and shares ISA, bear in mind that tax treatment may vary and is subject to change in the future.
Can I transfer a stocks and shares ISA to a new provider?
To transfer a stocks and shares ISA from one provider to another, speak to the new provider, who will arrange it on your behalf.
What do I need to bear in mind when choosing a stocks and shares ISA?
If you want the opportunity to spread your investments around different areas – and thus avoid putting all your eggs in one basket – you could choose a stocks and shares ISA provider that specializes in diverse portfolio management.
One of the key advantages of a stocks and shares ISA is that it can offer the potential to deliver higher returns than a cash ISA, especially if you plan to hold it over the long term.
Holding a stocks and shares ISA for a longer period of time increases your chances of riding out fluctuations in the market.
If you’re looking to hold your investment for at least five years, and are happy to take on a level of risk, then a stocks and shares ISA might be a suitable choice for you.
However, stocks and shares ISAs don’t provide the same level of security as cash ISAs. If you’re saving for the short term, need easy access to your money, can’t afford to risk your capital, or are simply risk-averse, then a stocks and shares ISA probably won’t be suitable for you.
As with all financial decisions, it’s best to seek independent advice if you’re unsure.
If a stocks and shares ISA isn’t the right choice for you, we also provide access to a leading range of cash ISAs.