ISAs can help you grow your wealth, by letting you enjoy the return on savings and investments tax-free. But there are many types of ISA, and although all offer tax-free growth, some deliver better performance than others.
You need to keep an eye on your ISA. Many market leading cash ISAs and investment funds have become much less competitive as new providers have entered the market. What’s more, there are many ISA providers. You need to be sure the provider you have selected is making your money work as hard as possible. Fortunately, you can transfer the savings or investments you have already put inside your ISAs to where they can work the hardest for you.
There are many types of ISA, and many ISA suppliers. But market conditions change, and an ISA which might have been a top performer 10 or even 20 years ago might be much less rewarding now. For example, these days there are Cash ISAs that pay as little as 0.10% interest. A good savings account could offer 10 or 15 times that rate of return. Although it could not offer the same tax-free status of an ISA, most people have a savings allowance which means they pay no tax on the first £1000 interest their investment earned anyway.
So, if you have held an ISA for a few years, other, newer ISA investments might reduce your fees, increase your chances of potential returns, or provide a better interest rate.
But there is some good news if you are unhappy with the returns offered by the ISA investment you have, or the performance of the supplier who provides it.
You can transfer your ISA funds to where they can work harder for you.
How do ISA transfers work?
Once you have put money into an ISA, it has protected status. If you transfer this money to another ISA, its tax-free status will continue. Transfers of funds that you put inside your ISAs in previous tax years don't affect your current annual £20,000 ISA allowance.
You can transfer to a better performing provider, or to a different type of ISA altogether.
This ability to transfer ISA funds means that you can shop around for the best returns, and if you already have several ISAs you can transfer all of your money to one place.
You can move from cash into equities, or from equities into cash. But many people will want to move from Cash ISAs, which thanks to low interest rates are underperforming, into an IF ISA. Others might prefer to transfer from a Stock and Shares ISA to avoid the volatility that can be inevitable with stock market investment.
Whatever you decide, you must follow the correct procedure, or your funds could lose their ISA protection.
How to transfer an ISA?
It is vital to transfer your ISA funds in the correct way – you can’t simply take them out from one bank or investment company and invest them with another.
If you withdraw money from an ISA, you’ll lose the tax benefits you have built up and that money will count towards your annual allowance if you try to reinvest it elsewhere. But by using your new provider’s transfer service your money can retain its ISA wrapper status and the transfer won’t affect your annual allowance.
So, once you have chosen the ISA provider you want to move to, the first step is to open a new account.
They should then provide you with a short ISA transfer form to complete.
And that’s all there is to it. Your new provider will take care of everything, and the transfer should be complete within two weeks if you had a Cash ISA, or slightly longer with Stocks and Shares ISAs, where the provider will need to sell your holdings.
Can you transfer any existing ISA?
You can transfer your Individual Savings Account (ISA) from one provider to another with no penalties, but there are some restrictions. If your Cash ISA has a fixed term, you may face a penalty if you withdraw funds early.
ISA rules state that if you want to transfer money you’ve invested in a Cash ISA during the current year, you must transfer all of it.
If you want to move money you invested in previous years, you can choose to transfer all or part of your savings.
What are the ISA transfer in rules?
Some ISAs might not accept transfers in, especially if you already have an ISA with the same provider, so it is also important to check this when making your choice.
If you want to transfer into a RateSetter IF ISA, we don’t set any restrictions. You can transfer in funds already put into Cash ISAs, Stocks & Shares ISAs and other Innovative Finance ISAs.
There is no limit on how much you can Transfer In, and there is also no limit on the number of different ISAs you can transfer to us. However, you are only allowed to subscribe to one of each ISA type during the same tax year.
How long does it take to transfer an ISA?
If you decide to transfer your existing ISA funds into an IF ISA with RateSetter, the whole process should take not more than 30 days.
Leave your other ISAs open with the balance in them and complete the forms we provide. We’ll initiate the transfer on your behalf so that you retain your tax-free benefits, and as soon as your funds are transferred, we will start looking for borrowers to match them with.
Please note that tax treatment depends on individual circumstances and may be subject to change in the future. Capital at risk. No FSCS protection.