Cash ISAs are a great way to save without having to pay a penny in tax, but if you don't keep an eye on the interest rate your money is earning you could still lose out.
It's often the case that Cash ISAs offer high introductory rates to attract new savers then drop to a much lower level after the first year.
However, just because you saved money in a Cash ISA with one provider it doesn't mean that it has to stay there if it's earning a pittance. You can move your money to a better ISA without losing its tax free status, simply by completing a Cash ISA transfer - here's how.
What is a Cash ISA transfer?
Each year there is a limit to the amount of money you can save in a Cash ISA.
An ISA transfer is where you move the money you hold in one ISA to a new ISA with a different provider (usually to get a better interest rate) without using up this year's tax free savings allowance.
However, you must make ISA transfers through your ISA provider (your bank or building society) rather than simply withdrawing it in cash and paying it into your new account, here's why:
Say you have £20,000 in a Cash ISA and want to transfer it to a new Cash ISA with a different provider.
If you withdrew the money as cash and paid it in to the new account yourself it would lose its tax free status and instead be counted towards this year's tax free savings allowance.
What's more, you would only be able to deposit your annual limit (£15,240 for the 2015/16 tax year) into the new ISA so would have to find a taxable home for the remainder of the savings you withdrew. You would not be able to save any more money tax free in a Cash ISA this tax year either.
However, if you completed an ISA transfer form and transferred the money directly from your existing ISA provider, you could move the full £20,000 and would not have used up any of this year's tax free savings allowance, so you to save more in either the same or a different Cash ISA if you wanted to.
ISA transfer rules
For tax purposes you can only subscribe to one Cash ISA each tax year.
However, ISA transfers are not counted as subscribing to a new ISA. This means that if you transfer money from an old ISA into a new account you can still open a different ISA and pay in new funds during the same tax year.
Transferring ISA penalties
Before moving your money you need to check that your existing ISA will not penalise you for transferring your money to a new account.
If you've had the account for a long time then it's unlikely this will be the case, but if you have a notice ISA, or a fixed term ISA you may still have to give a certain amount of notice or wait until the end of the account term to avoid any withdrawal charges or interest penalties.
Check your existing ISAs terms and conditions before requesting a transfer: if it doesn't allow cash ISA transfers out mid term then you'll need to wait to avoid penalties or loss of interest.
Choosing your new transfer ISA
Check the ISA accepts transfers in
Not all cash ISA providers will accept money transferred from ISAs with different banks or building societies.
You need to check that any new ISA you're looking to move your money to accepts ISA transfers in and exclude those that don't from your search; this is the only way to secure the best rate ISA transfers.
Can you access the money?
As with any savings account, when transferring funds into a new ISA you need to consider what level of access you need.
If you want the security of knowing that you can withdraw your savings at any point then opting for an instant access ISA is likely to be the best ISA transfer choice.
You might also want your account to offer cash ISAs free transfers out, so you can move to a better-paying account if one becomes available.
However, if you are happy to lock your money away and are unlikely to need to withdraw it in the short term, then you may want to sacrifice your access for a better interest rate.
Does the new ISA meet your needs?
You need to consider whether the best Cash ISAs that accept transfers really suit your needs and if the amount you have to transfer fits their criteria - some ISAs can be opened with just £1, but the top cash isas accepting transfers may have stricter criteria.
Check how much money you have in your old ISA as the best cash isa accepting transfers in, might ask for at least £500, £1,000 or even £5,000 to be transferred when you open the account.
Look for the best ISA transfer rates
Getting the highest interest rate possible on your ISA will ensure that the money you transfer into your ISA is working as hard as it can.
Once you have settled on the type of access you need to your savings and exclude ISAs that don't accept transfers your aim should be to find an account that offers the best ISA rates for transfers possible.
You can use our best cash ISA transfer rates comparison table to compare transfers and check the terms and conditions of all the cash ISAs allowing transfers in.
You should also check whether the ISA transfers rates on offer are guaranteed for a fixed period or subject to change at any time.
You don't necessarily have to be put off by accounts offering introductory bonuses to boost their interest rates; instead make a note of when the offer ends so you can investigate transferring your ISA savings to the best transfer in ISA around at the time once the rate drops.
Consider transferring to an Investment ISA
If you feel uninspired by even the best transfer in ISA rates you could still maintain your tax free benefits and seek a higher return by transferring your Cash ISA savings into an Investment ISA.
Returns from Investment ISAs have historically been greater than those offered by Cash ISAs, yet they do represent a greater risk to your capital than saving in cash.
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