Is it worth transferring your ISA?
As with all investments it is always worth keeping an eye out for good deals and changing providers can sometimes either save you money or improve your financial returns. And an ISA is good example for that. But you must understand the rules so that you do not get charged or miss out on the tax free elements.
What are the benefits of transferring your ISA?
The biggest advantage could be that you can find better rates elsewhere. The low interest rates of recent years mean it could be worth shopping around for a better cash Isa rate elsewhere, or moving your money into stocks and shares Isas.
Or you could be consolidating Isas or opening a new type such as the Lifetime ISA, an incentive to save recently introduced by the government where they offer a 25 per cent bonus on contributions up to £4,000 a year.
How you manage your annual Isa allowance is quite flexible. You can split your 2017-18 tax year Isa allowance of £20,000, whichever way you like with choices of stocks and shares, cash, Lifetime and Innovative Finance Isas. There is also the Help to Buy Isa, but you would have to only pay into either this or a cash Isa within the same tax year.
How easy is it to transfer?
It is quite simple to move money between Isas and transfers do not count as new payments, so will not eat into your annual Isa allowance. Once you have done your research or taken advice on the best offers for you’re the new providers will manage the transfer.
What are the transfer rules?
The most important ‘Golden Rule’ is to not withdraw your money and close your ISA account if you are looking to change as this will cancel out the tax benefits. Plus when you pay into a new one it will be counted as a new subscription and eat into your annual allowance.
You must speak to the new provider first and fill out an ISA transfer form. Your new company should then sort it all out, including moving the money over for you, keeping your ISA cash permanently tax-free.
You must also make sure that you know exactly what money you can move and what you might be charged for.
Work out which money you are trying to move. You can transfer chunks of Isa savings from previous tax years, but you cannot partially transfer an Isa which you have already paid into in the current tax year. If you have put money into an Isa in the current tax year and want to move it, you will have to transfer the whole balance over.
With stocks and shares Isas, if you looking to move these you will need decide whether to move this as cash or stocks within the portfolio.
The cash option means your investments will be liquidated before being transferred to the new provider, which then you can repurchase your investments or buy different ones. This does have the risk of the market moving while you are not invested, and you will pay dealing fees when you buy funds and shares again.
On the upside, this approach could be a cheaper way to exit your current provider and a good option if you want to change your Isa portfolio.
If you decide that you want to stay invested, you can move your investments as they are, ‘in specie,’ and your money remains invested during the transfer process. However you will probably be charged exit fees as brokers generally charge per line of stock transferred out.
Want to know more?
To have a look at our new online investment service within our Personal Finance Portal (PFP) – this is the perfect tool for making the most of your 2017/18 ISA allowance. The PFP app allows you to view all your finances in one place 24/7 on any mobile or web device – and at the click of a button you can review all your fund information, an up-to-date valuation of your portfolio and assess how you’re progressing against your goals.