Rules of Transferring a Cash and Investment ISAs

POSTED ON Thursday, 30 January, 2020

It’s always a good idea to shop around when looking for an ISA – to find the best interest rates and terms which suit you and maximise your returns. But what if you find a better deal after you have already opened an ISA? 

Why would I want to transfer my ISA?

Often, people can be sitting on an ISA which they opened quite some time ago, and are not gaining as much interest on this as when they first opened that account. As better interest rates are out there, they might want to transfer in order to generate better returns.

You can only open one new ISA each year, so if you want to take advantage of a newly found better deal, you will need to transfer your ISA to the new provider.

What are the rules on transferring a Cash ISA?

If you have found a better deal for your Cash ISA with a different provider that you want to take advantage of better interest rates then you might be looking to transfer.

  1. You need to ask your providers to switch your account for you – both your current and your desired provider. It’s important to make sure the banks are the ones who do the transferring, as if you withdraw and move the money yourself if looses the tax-free status.
  2. Your current bank is required by law to ensure that they accept your request for transfer – but your desired provider is not, so make sure that you check that they will accept a transfer before you start the process.
  3. You can transfer any ISA you hold, whether it is from this year or previous years.
  4. You can transfer funds from previous ISAs into different accounts, splitting the benefit you can gain.
  5. You could be subject to penalties from your current provider for switching – make sure you’ve read the small print to be prepared to know what percentage (if any) of your money they might take as a leaving penalty.
  6. You have to transfer your ISA from the current tax year in one lump sum. Previous years’ ISAs can be split when transferred.
  7. You can pool all of your money from previous ISAs into one bank account, you are able to do this. But the money will only be protected up to £85,000 as this is the FSCS limit.

What are the rules on transferring an Investment ISA?

If another bank or provider offers a lower rate of fees or not charge as much in management commissions, or they might offer a better range of choice for your funds to be invested into.

  1. You are able to move money from your Investment ISA to your cash ISA – no matter if these are held with the same provider or a different one.
  2. Like with Cash ISAs, you need to make sure your providers do the legwork to make the switch for you. Otherwise, you run the risk of loosing the tax free status of your money if you attempt to withdraw and re-invest yourself.
  3. Be aware that transferring to Investment ISAs takes longer than Cash ISAs. Cash ISAs often take about 15 days to transfer, but Investment ISAs can take up to 30 days in order to process.
  4. You can choose whether you want to transfer your Investment ISA as stock or as cash. Generally this will boil down to whether or not you are happy with your investments. If you are, you should transfer as stock, and if not then cash might be a better option. Transferring your ISA Investments to cash will involve selling the stock your money is invested in.
  5. Like with Cash ISAs, there might be exit penalties by certain providers when it comes to transferring to a different supplier. Getting in contact with your new provider might be worth your while here, as some suppliers may agree to cover the cost of these penalties for you because you are transferring to their service.
  6. Follow up with your previous provider once it’s been a couple months. Because dividends on investments are usually paid a few months after the investment has been made, you might be due some payments from your last couple months with that supplier. They should forward these to you automatically, but they might not always so it is worth following up.