Why Should I Transfer my Cash ISA to an Investment ISA?

POSTED ON Wednesday, 19 August, 2020

It’s not news to anyone that the Coronavirus pandemic has had quite the impact on the Bank of England base rate, leading to it falling to a historical low. The result: Cash ISA rates, which were already fairly poor, are now even more so. If you’re looking to get a better return from your ISA, it is a good idea to transfer your Cash ISA to an Investment ISA – and we’ve broken down everything you need to know. 

To be blunt, the Bank of England Base rate is very, very poor at the moment – and as a result the interest rates on Cash ISAs are also at an all time low.

This means that while a Cash ISA is theoretically low risk (in terms of losing money) – you could actually be losing money by keeping your cash in one.

If inflation is much, much higher than the interest rates (which is the case for most Cash ISAs at the moment), over time you could actually be losing money by keeping your coins in one.

So, what should you do?

One way to try and combat this is by transferring your Cash ISA into an Investment ISA.

While investment ISAs can be considered to be higher risk as your capital is at risk, they do offer the potential of higher returns than Cash ISAs. This can be a better way to make your money work for you, and there are lost of low-cost options for your investments which you can choose.

There are also some Investment ISAs which are lower and higher risk, so if you are particularly risk averse, you should consider looking at lower risk options. Do remember that if you are going to put money into an Investment ISA, you need to be comfortable that the value of your ISA may go down as well as up; you should also be looking to keep your money invested for at least 5 years or more. 

How do I transfer?

If you’ve decided you’d rather have an Investment ISA to take advantage of the better rates of returns available, you’re able to either just open a new one and put your money in or transfer your existing cash ISA into a new Investment ISA.

Either way, here are a few things you need to know:

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.

You absolutely must 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.

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.

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.

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.

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. 

Read more about Investment ISA options here.