A simple guide to ISA transfers

What they are, how they work and the benefits

Rosie Murray-West – Virgin Money Living Mentor

by Rosie Murray-West | Independent Money Mentor

Award-winning personal finance and news journalist

Saving and investing tax free through your annual ISA allowance is a really sensible way to maximise your nest egg. But even if you’ve taken all of the usual steps to make the most of your ISA allowance, your ISA savings could still be turning in poor performance because they are languishing in poorly performing accounts.

As well as the ISA allowance savers get each year, remember you are able to transfer existing ISA savings and investments to other providers whenever you want. As well as the convenience of being able to manage everything in one place, this can give you access to better rates and lower charges, or allow you to switch your tax-free pot between cash savings and investments.

ISA transfers are usually simple and quick, but it is important to understand exactly how they work so that you don’t risk losing your ISA benefits.

What is an ISA transfer?

An ISA transfer moves your savings or investments from one provider to another without the money ever coming out of the ISA account and losing its tax-free status. These transfers don’t count as new ISA contributions, so you can transfer existing ISAs to a new account whenever you like without impacting your £20,000 a year ISA allowance.

Cash ISAs can be transferred into stocks and shares products and vice versa. Some special types of ISAs, such as Help to Buy, Lifetime, Innovative Finance and Junior ISAs, have different rules, which will be discussed later in this guide. If you want to transfer your fixed rate or notice cash ISA you may find that you will pay a penalty for transferring before the end of a fixed period. 

What are the benefits of making an ISA transfer?

There are several reasons to transfer your ISA. Your current ISA may be earning interest at a low rate, or languishing in a poorly performing investment fund. Many providers offer the best rates to new customers, so it is sensible to see whether your previous years’ ISAs could earn more elsewhere.

You might also choose to transfer if you have many smaller ISA pots from past financial years. It is often easier to manage your money in one place. If you are consolidating a large number of ISAs, though, it is important to remember the limits of the Financial Services Compensation Scheme (FSCS). This scheme pays out if a financial institution becomes insolvent. It also applies if the company you have invested with goes bust and cannot return your money or you lose out through fraud or poor financial advice. However, you are only covered for the first £85,000 of savings with any one institution , and for the first £85,000 of investments (from 1 April 2019), so it makes sense not to breach these limits if you can.

Another reason to transfer is if you decide you would rather have your money in a cash ISA if it is currently in a stocks and shares ISA, or vice versa. You are now able to transfer freely between these two types of ISA, and can open one of each in each tax year.

How do I make an ISA transfer?

Once you’ve decided you want to transfer your ISAs, select an alternative provider that allows transfers from existing ISAs.

The next step is to open the new ISA and fill in a transfer form from the new provider. This is usually part of the account opening process and will ask for the account details of existing ISA products that you want to transfer.  In most cases you can transfer either the whole amount or part of it, as long as the new provider accepts partial transfers.

After you have done this, the process should take no more than 15 working days if it is a cash to cash ISA transfer, and 30 for all other types of ISA. For cash ISAs, if the transfer takes longer, your old ISA provider must compensate you by paying the interest rate offered by the new ISA provider . Once the money is in your new account, the old account will be closed if it is a full ISA transfer.

Now you know how easy it is to transfer an ISA, it is time to consider your own ISA portfolio. Think back over your ISA savings – some of which you may have forgotten about completely. It may be time to think about bringing you ISAs together for convenience and peace of mind, as well as to maximise potential returns from this valuable Government tax-free allowance.

What about all the other types of ISAs? Can I transfer them too?

In recent years, the Government has allowed a range of new tax-free accounts that are also called ISAs. These include the Junior ISA (for children’s savings); the Innovative Finance ISA (for investing in peer-to-peer and crowdfunding projects); the Help to Buy ISA for first-time buyers and the Lifetime ISA for first time buyers and those saving for retirement. 

All of these have slightly different transfer rules...

Junior ISA

Like normal ISAs, Junior ISAs can be in cash or stocks and shares, or you can contribute to one of each. You can switch between providers or types of Junior ISA at any time you like. A Junior ISA becomes an adult ISA when they turn 18 years old, and can then be transferred to other adult ISA products. If your child has an old-style Child Trust Fund, this can also be transferred to a Junior ISA.

Innovative Finance ISA

You can transfer money from an existing ISA into an Innovative Finance ISA using the same process as described above for cash and stocks and shares products.

Help to Buy: ISA

You can open this type of ISA, which comes with extra Government bonuses for first-time buyers, until 30 November 2019, and contribute until 30 November 2029 . You can transfer a Help to Buy: ISA to another bank or building society using the same transfer process described above, and you can also transfer it to a Lifetime ISA.

Lifetime ISA

You can transfer £4,000 from any other ISA to a Lifetime ISA each tax year, and get a 25 percent government bonus on this up to £1,000. You can also transfer a Lifetime ISA between providers. If you are over 60 you can transfer cash and assets between a Lifetime ISA and another type of ISA penalty free, but if you are under 60 you will pay a withdrawal charge of 25 percent.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.