The Facts About Transferring an ISA

An ISA is a really great way to grow your savings and benefit from it being tax-free, regardless of how much money you make or which income tax bracket you are in. Just because you have put your money away in an ISA, though, it does not mean you are getting the best possible interest rate, and this is why transferring your ISA can really pay off in the long-run.

If you have a particularly old ISA, it may be worth checking this; over time, your interest rate may have been reduced and there could be far better deals out there.

Unfortunately, many people wrongly believe that because their money is locked away in this ISA, they cannot touch or transfer it. This is not the case; all ISA providers must make it possible for you to transfer your money to another provider if you so wish. There can be penalties for transferring your ISA, especially if you have a fixed ISA rate, so it is best to do your research before taking the plunge to ensure you’ve made the right choice.

Why Transfer Your ISA?

There are two primary reasons it may be beneficial for you to transfer your ISA.

First of all, and most obviously, to get a better rate. If there are better ISA interest rates out there, why would you keep your money locked up in a place where it’s going to accrue less interest? It doesn’t make sense to do that! Some ISA providers reduce their interest rates over time, so a fresh ISA can really make a world of difference.

Secondly, if you have multiple savings pots or a couple of different ISAs, consolidating your savings and bringing them all together under one ISA policy can make financial management much easier. There are ISA providers out there who will let you invest anything and everything, so if you have an ISA for cash and an ISA for other investments – such as stocks and shares – it really makes sense to bring it all under one provider, especially if you have found a really great interest rate.

Things to Watch Out For

So long as an ISA provider accepts transfers (although they have to let you transfer out, they do not have to let people transfer in), you can switch to a new provider. In general, the ISA accounts which are more open to transfers are variable rate accounts, but it is worth remembering that some ISA providers will sting you with a penalty for transferring your money out. The biggest culprit of transfer-out charges are fixed-rate ISAs, and this could quite easily wipe out the benefits of transferring if the charge is big enough. Before you commit to a transfer, make sure you read all the fine print and know exactly what it is going to cost you.

If you do decide to transfer your ISA, make sure you follow the official process. You cannot simply withdraw your money, close your ISA, and then deposit it into a new one. By doing that, you will lose all the tax-free benefits of the ISA and, because ISAs have an annual limit, you will not be able to re-deposit all your money back into a new ISA if it is a significant amount, say £20,000 or more. It is very important that you follow the official transfer process, otherwise, you will have to start over again. Transfers are not controlled by the paying-in limit, so you can transfer as much money as you like.

You may have to transfer all of your ISA to a new provider, especially if you have only paid into the ISA you are transferring to during the current tax year. In addition to this, some providers do not allow partial transfers at all.

The message to take away from all of this is to read the fine print! This is something you should do whenever money is involved and, by doing so, you can avoid being stung by charges and other nasty surprises.

In addition to these, here are four common ways people slip-up when transferring an ISA; don’t fall victim to one of these!

1. You cannot part-transfer money from the current tax year

Money which represents investments from the current tax year (i.e. 01 April 2018 to 31 March 2019) cannot be transferred in part and must be transferred as a whole. So, if you invested £10,000.00 on the 10th April 2018 and then wanted to transfer £5,000.00 of that cash to a new ISA, you could not do this until 01 April 2019, the next tax year, and would need to transfer the whole balance of £10,000.00.

2. Some ISA investments are difficult to transfer

Although we are primarily talking about cash ISAs here, other investments held in ISAs can sometimes be difficult to transfer. The most notorious being stock market-linked bonds (or structured products); check the terms and conditions with your current ISA provider and the company or broker who sold you the investment in the first place, as there may be certain penalties for transferring-out if you can do it.

3. You may need to pay

Even if your ISA provider will not hit you with a penalty for transferring-out, you may still need to pay some money to your ISA provider to close your account. If your ISA contains shares, for example, you will also need to pay dealing charges. There is a whole range of different charges depending on what you are transferring, so it is best to do your research first.

How to Transfer an ISA

Making the move is very easy indeed – when you have done all your research and read the fine print, have found the best possible rate and have double and triple-checked that your potential new ISA allows transfer-ins, you are all set! All you need to do is open your new account and complete a very short transfer form. After you have done this, it is all in the hands of your new ISA provider and they will complete the transfer process for you. Usually, it will all be done within 15 working days and you will be compensated for any interest lost if the transfer takes longer than this period.

Officially, your old and new ISA providers have 26 working days to complete the switch and finalise the transfer.

To sum everything up, transferring an ISA – be it a cash ISA or otherwise – can be a great way to take advantage of higher interest rates and better deals, especially if you have had your current ISA for a number of years and it has begun to go stale. Although the transfer process is relatively simple and can be completed in as little as two to three weeks, there is usually a lot of small print attached to the transfer process.

This, largely, depends on the ISA provider you are transferring from and the one you are transferring to, so it really can save you a lot of time, headaches, and money if you exercise a little due diligence and read the fine print. Nobody enjoys doing this, but it is well worth it in the long-run, especially if you are transferring non-tangible assets such as stocks and shares.

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