If you have a cash ISA that’s paying a lousy rate of interest, you can switch to a better one, but make sure you get to grips with ISA transfer rules first.
There’s always a lot of fuss made about opening a new cash ISA and making sure you make the most of your ISA allowance every year. That can be good advice, but you shouldn’t forget your existing ISAs.
If you’ve taken out cash ISAs in previous tax years, you may have found that the attention-grabbing bonus rate has long since disappeared and that the money you’ve squirreled away is only paying enough interest to buy you a meal out – rather than anything more expensive –at the end of the year. So, to maximise your interest, why not switch?
What are the cash ISA transfer rules?
If you have money sitting in a cash ISA and the interest rate is low, you don’t have to leave it where it is. You can transfer the money to another ISA provider and it won’t affect your annual allowance.
- Money in your cash ISA from the current tax year: If you have money in a cash ISA that you want to transfer into another cash ISA in the same tax year, you’re allowed to do that. ISA rules changed in April 2024, so that you no longer have to transfer the whole amount, you can move just some of your ISA money if you want to.
- Money in your cash ISA from previous tax years: If you have money in a cash ISA that you’ve paid in during previous tax years, again you can transfer some or all of it to another ISA provider.
Whether you’re moving money in a cash ISA from the current tax year or from previous tax years, you must transfer money directly from one ISA provider to another; you should never just cash in your ISA and put the money into an ordinary bank or savings account before it’s moved to your new ISA provider. If you do, you may have to pay tax on the interest you’ve earned.
Can I transfer from a cash ISA to a stocks and shares or innovative finance ISA?
If you’ve saved money into one or more cash ISAs and you’d like to invest it in a stock and shares ISA or an innovative finance ISA, which allows you to save with peer-to-peer lenders, you can switch it – just as you would if you were transferring between cash ISAs.
If you transfer money from a cash ISA to a stocks and shares or innovative finances ISA in the current tax year, you’re treated as though you’ve never taken out the cash ISA and you can pay up to £20,000 into a different type of ISA.
The ISA rules also let you transfer money the other way – i.e. you can move money from a stocks and shares ISA to your cash ISA. This enables people to remove money from potentially volatile share investments if they’re perhaps no longer comfortable with the risks of leaving it invested.
Not all ISA providers accept transfers
The obvious starting point for finding an ISA provider to transfer your ISA savings into is to look at the best buy tables. But it’s not that simple as not all ISA providers accept transfers.
ISAs that do accept cash and stocks and shares ISA transfers include:
- Castle Trust Bank’s 1 year Fixed Rate e-Cash ISA pays 4.52% AER on deposits of £1,000 or more. Interest is paid on maturity.
- HTB’s 1 Year ISA Bond (Issue 35) pays 4.50% on deposits of £1 or more. Interest is paid annually.
Rates correct as at 09.12.24
Once you’ve found a cash ISA that you want to transfer to, and checked that it accepts transfers, get in touch with the new provider and ask them to make the transfer. There’s a very simple transfer form to fill out, the rest is done on your behalf by the provider you’re moving to. Remember, you should never withdraw the cash from your ISA and move the money yourself. This means it will lose its tax-free status.
You can find more best buy cash ISA rates in our guide Best cash ISA rates – which cash ISAs pay the most interest? and if you want to know more about cash ISAs generally, our article How cash ISAs work may help.
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