Cash ISA transfers: at a glance
- What do I need to know? There are rules covering how you can transfer the balance of your cash ISAs between banks.
- What does it mean for me? If you don’t follow the guidelines, you risk losing the tax-free status on your ISA and even some of the interest you’ve earned.
- Why does it matter? Understanding the cash ISA transfer process - and its potential risks - allows you to make the most of opportunities to increase your earnings.
Cash ISAs (Individual Savings Accounts) are a popular way to grow savings thanks to their tax-free status, competitive rates, and targeted use cases. Each year, you can save up to £20,000 across different ISAs and earn tax-free interest.
UK Government data shows cash ISA subscriptions rose by 67% in the last year. The Government attributed this growth to the Bank of England base rate, which has made cash ISAs an even more attractive option for earning interest.
But there are rules around how you can transfer the balance of a cash ISA between banks. And if you don’t follow them, you risk losing out on some of your allowances and earnings.
In this guide, you’ll learn about transferring cash ISAs, including the rules for transfers and the potential benefits and risks if you decide to make the move.
Why savers are transferring cash ISAs
If you’ve grown your wealth portfolio with cash ISAs, you might be tempted to transfer your money between banks or providers at some point. Moving money to a different cash ISA might secure a more competitive interest rate, or greater access to your cash when you need it (more on this later).
There is also currently speculation that the Chancellor will reduce the current £20,000 ISA contribution limit to £10,000, in what Flagstone CEO Simon Merchant calls: ‘A blow to savers.’
Just because an individual won't be able to deposit as much into their ISA, they won’t be prompted to invest instead.
As a result of the speculated change, savers are likely to search for the best rates on their accounts.
Transferring a cash ISA means that even with the reduced tax-free allowance, savers can maximise their earnings as much as possible.
How to transfer a cash ISA
To transfer a cash ISA, you’ll need to contact the bank, building society, or savings platform you’re looking to switch to. Not the bank you’re currently with.
Each provider will have its own process for transferring cash ISAs. But there are some general guidelines that apply when it comes to moving money to a new cash ISA.
What are the rules for cash ISA transfers?
There are generally three rules that apply to cash ISA transfers.
1. Follow the provider’s process
You must follow your new bank’s formal procedure for transferring funds. If you simply withdraw your money and put it in a new cash ISA, HMRC will treat this as a second contribution, rather than a transfer.
This could mean you exceed your annual ISA allowance without increasing your deposit, limiting the interest you can earn in the current tax year.
2. Transfer with authorised ISA managers
There is an official list of ISA managers approved by HMRC. These are organisations that HMRC has authorised to manage these accounts.
Make sure your new bank or provider is authorised, or your transfer may not get recognised.
3. Wait for fixed-rate terms to end
Some ISAs are fixed-rate, meaning you agree to lock your cash away for a set period, usually in exchange for a higher than average interest rate.
This means you can’t access your money until the term ends, or your bank will charge a fee. If your existing cash ISA has a fixed term, make sure you only transfer funds after this period has ended, to avoid a penalty or losing your interest.
What are the benefits of transferring a cash ISA?
Transferring a cash ISA to a new provider could mean:
- higher interest rates: Other banks may pay you more interest than your current provider.
- FSCS protection: Some ISAs are eligible for the Financial Services Compensation Scheme (FSCS), protecting your deposits up to £85,000 per person, per financial institution. Transferring money between different financial institutions can increase your protection.
- easier access: Moving from a fixed-rate account to an instant access account means you can withdraw your cash whenever you need it.
- effortless management: Consolidating multiple cash ISAs into fewer accounts can give you greater visibility and control over your money, especially if you use a savings platform like Flagstone.
What are the risks of transferring a cash ISA?
There are risks to consider when you decide to transfer a cash ISA. These may include:
- losing your tax-free allowance: You’ll need to follow the formal transfer process with an approved ISA manager.
- reductions in earned interest: You might face a penalty for transferring money before a fixed period has ended. And you might miss out on interest earning in the gap while the transfer takes place.
- facing penalties: Some accounts may charge fees for early withdrawal, which could offset some of the benefits of switching.
- restricting your protection: If you’re transferring cash ISA funds to consolidate accounts, you could limit your FSCS protection.
Frequently asked questions about transferring cash ISAs
How long does a cash ISA transfer take?
Cash ISA transfers should take up to 15 working days if the money is being transferred to another cash ISA, according to HMRC. If you’re moving your funds to another type of ISA, it can take up to 30 working days.
Can you transfer an ISA without a penalty?
You won’t face a penalty for transferring your cash ISA as long you follow the rules. This means using the transfer process outlined by an HMRC-approved ISA manager.
What are the tax implications of transferring an ISA?
If you follow the rules for transferring cash ISAs, there are no new tax implications, and you’ll still be eligible to use your full tax-free £20,000 allowance for the current year.
Can you transfer from one cash ISA to another?
Yes, you can formally transfer money held in one cash ISA to another. But withdrawing and moving money manually can cost you your tax-free allowance or even trigger a penalty if your current cash ISA is a fixed-rate account.
Can you transfer a cash ISA to another person?
You can’t transfer your tax-free cash ISA to someone else, as everyone has their own annual allowance. But you can inherit the balance within an ISA, especially if your spouse or civil partner named you as the beneficiary.
This means that the cash within an ISA that you inherit forms part of your loved one’s estate, which determines the amount of Inheritance Tax that’s paid to HMRC.
If you wanted to give money to someone else in your lifetime, you would need to withdraw your balance into a current account and send it to them. In this case, the recipient will still only be able to use their own £20,000 annual allowance.
There are also rules around how much you can gift someone tax-free each year.
Understand the rules for transferring your cash ISA
Transferring your cash ISA could give you greater control and protection over your money, without compromising your tax-free allowance. But it’s important to follow the rules for transferring your funds to make sure you don’t pay avoidable penalties or fees.
Savings platforms can help you keep track of your cash, letting you benefit from opening multiple accounts without the paperwork.
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