Should I Transfer My ISA?

ISAs or Individual Savings Accounts are effectively tax free savings accounts, allowing you to save up to £5,640 each tax year (from April to April).

ISAs are a good idea but the rules vary significantly between them, with some allowing transfers and some not.

Like many savings accounts, the interest rate you get on your savings varies, with some providers giving you a better rate of interest than others. If your ISA isn’t doing very well then you may want to consider transfering it to another provider.

However, be aware that there could be a penalty to transferring your ISA which may make the move not worth your while. If your ISA has dropped in value then you may also re-consider your plans to move it.

The penalty could be anything from 30 days lost interest up to a much higher fee, depending upon the provider. The higher fees can lock you in to a particular ISA because it become cost in-effective to move. If your ISA does have a penalty for moving it then you need to calculate where your money is best off – where it is or take the fee on the chin and move it to a new provider.

You do need to watch your ISA, particularly if it is a share, rather than a cash ISA, because it can suffer from the volatility of the market. Though saying that, with such low interest rates, cash ISAs growth has become stunted and many people are moving towards share ISAs because of the higher potential growth (which does come at a risk).

When it comes to moving your ISA it isn’t the easiest process. Be aware that you cannot take the money out of the ISA to move it as you will lose the tax benefits it has given you.

If you want to move your ISA then you need to speak to your new provider and complete a transfer form. This will, in most cases, include a letter to your existing provider that you can send to them to inform them of the move.

The new company will sort everything out for moving your ISA and ensure that your tax benefits remain intact. The agreement between the banks is that an ISA transfer will take no more than 15 working days. During the move you may not always receive interest. Should the transfer take over 15 days then you can complain to your ISA provider who should resolve the issue for you.

The transfer rules for ISAs are unnecessarily complex, but basically you cannot transfer a shares ISA into a cash ISA but you can transfer a cash ISA into a shares ISA.

You also cannot split the current years cash ISA between different providers. However, you can split the allowances from previous years. This means that you can move some of last years ISA investment from cash into shares and enjoy a great return on your investment but at a higher level of risk. Basically, it means you can use some of your ISA for riskier investments and keep some in more stable investments.

If it is going to be worth your while financially to move your ISA then you need to move it – consider splitting previous years investments if it is cost effective. If it is going to cost you more than you will gain to move your ISA then you need to leave it where it is.

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