ISAs can be a good way to maximise your savings and avoid paying excess tax. However, leaving your money in the wrong account can leave you with pretty meagre returns.

Transferring one ISA into a better ISA is usually your best course of action. Transferring ISAs is usually quite straightforward – but getting it wrong can drastically affect your savings.

What are ISA transfers?

ISAs offer a tax-free wrapper for saving in the UK – so if you save in an ISA account, you won’t be charged tax on the interest you receive, or on any dividends/growth if you’re using a stocks & shares investment ISA.

Each tax year you can pay a specified amount into your ISAs – you can have more than one. The current ISA allowance for 2020/2021 is £20,000, but it tends to increase annually, with next year’s allowance announced in the government’s annual budget, to give banks and savers time to plan.

Typically, around the start of the new tax year (April 5), the UK ISA market heats up – interest rates and product marketing increase. This is when you tend to get the best ISA rates, but they are not always what they seem.

Rates are often incentivised to make them as attractive as possible during ‘ISA season’, and many include ‘bonus interest’ which is only available for a set period – and then the interest drops to a much lower rate.

Making rates appear as attractive as possible when people are thinking about ISAs is a great marketing tactic, and many people forget to switch when their rate drops. If you’re canny, you can use this marketing merry-go-round to maximise your ISA returns by regularly switching to the best deals. 

However, this year rates have remained miserably low. According to Moneyfacts, average savings rates fell to their lowest levels on record this year. The average rate for an easy access ISA in March, for example, was 0.83% but this fell to 0.32% in August. For the average rate of a notice ISA, it was 1.13% in March and just 0.52% in August.

But if you do decide to transfer your allowance, just what are the rules and how do they work?

Can I transfer my ISA?

All ISAs, including junior ISAs, are transferable – but there are good reasons you might choose not to transfer your ISA at a particular time. For example, some cash ISAs (such as ‘notice’ ISA accounts) require you to keep your money invested for a set period to receive enhanced returns. This doesn’t restrict you from transferring away from these products immediately, but you should check if the returns you’ll get from the new ISA will outmatch what you’ll get if you stuck with your existing ISA.

How do I transfer my ISA?

The process for transferring an ISA is the same, whether you are transferring a cash ISA or stocks and shares investment ISA. You’ll need to provide your new ISA account supplier with some basic information to enable them to identify the account(s) you hold elsewhere, including:

  • Name

  • Address

  • Date of birth

  • National Insurance number

  • Account number of the ISA you are transferring from

  • The name of the ISA supplier you are transferring from

  • The address of the supplier you are transferring from

  • The amount you want to transfer

As part of the transfer process you will probably be asked if you want to deposit any additional funds. Remember, the total amount of money deposited in your ISAs can’t exceed your annual allowance. (This is tracked through your National Insurance number, in case you’re curious.)

Once you’ve submitted the required information, your new supplier will arrange the transfer(s) for you. If you are transferring a cash ISA it’ll take about 15 days. A stocks and shares investment ISA takes longer to transfer – around 30 working days. 

22 October 2020