We guide you through the benefits and potential pitfalls of transferring your ISA to another provider.
A Cash ISA acts as a tax-free savings account, into which you can deposit up to a maximum of £5,340 this tax year (6th April - 5th April) – money which can accrue a significant amount of interest if you scout out the most competitive provider. This is because, unlike with ordinary savings accounts, you won't pay any tax on the interest you earn.
As with ordinary savings accounts, Cash ISA rates can be quite changeable (unless, of course, you opt for a fixed-term option). Therefore it's vital you check the rate of interest paid on your Cash ISAs regularly, to ensure that you have the most competitive deal available.
It's also really important to make a note as to when any introductory bonus or fixed rate ends so that you are able to move your money to a more profitable home when the rate drops.
Why transfer?
It's quite possible that since opening your Cash ISA its rate has dropped considerably, and your money is now accruing interest at a significantly lower rate than it once was.
Contrary to popular belief, you are able to transfer any money you paid into cash ISAs during previous tax years to a new account so that it continues to earn a decent return. You just have to go about it the 'proper' way.
Unlike ordinary savings accounts, money in a cash ISA needs to be transferred to a new account rather than simply withdrawn as cash and used to open a new one. This is so that it keeps its tax-free status and doesn't use up your current tax year's allowance.
You can choose to keep money you saved in previous tax years separate by transfering them individually or amalgamate savings from a number of years' allowances in a single Cash ISA account.
How do I go about transferring?
When you’ve made the decision to move your money elsewhere it’s crucial to remember never to simply withdraw your savings as cash. Instead you need to arrange a provider to provider transfer.
To do this you'll need to:
- Check whether you are able to transfer money from your current Cash ISA without penalty.
If a penalty applies you'll need to weigh up the cost of putting up with a lower interest rate until the penalty period ends compared to the amount you'll lose if you move your money now and are penalised accordingly.
- Check whether you are able to transfer money from your Cash ISA without giving notice.
If a notice period applies inform your current provider of your intention to transfer your ISA and give the appropriate amount of notice.
- Find a new Cash ISA that accepts transfers.
You can use our Cash ISA comparison tables to find a suitable home for your tax free savings - the Advanced Search is particularly handy for this.
Remember that in addition to checking interest rates and withdrawal terms you will need to make sure that any new cash ISA you consider accepts transfers in from other providers, as well as whether they specify a maximum amount you are able to transfer in and whether this is sufficient for your needs.
You can read our Cash ISA guide for more information on picking the best cash ISA for your savings.
- Apply for a new Cash ISA.
Once you are confident that it's 'safe' to move your money and have found a new account to suit you'll need to apply.
During the application process you'll be asked whether you would like to transfer in money from previous year's allowances. Here, you'll simply need to provide details of the account/s you would like to move money from and your new provider will arrange the transfer.
You'll also be asked to state how much you'd like to save as part of this year's allowance. If you are only using the account to transfer money from previous years' cash ISAs, you don't need to add anything here and can leave the amount as £0.
The money will then be moved over for you and your tax benefits will remain intact.
Things to remember
There are certain kinds of transfers you won’t be able to carry out, so bear these points in mind when you are considering transferring.
- A Cash ISA can be transferred into a shares ISA, but not vice versa.
- If you are intending on splitting your savings between more than one ISA provider, remember that you can only do this with allowances from previous tax years. Money paid in this tax year must be moved as a whole.
