ISAs Explained

 ISA transfers

If you have money in a cash ISA account that is no longer paying a competitive rate of interest you can transfer it without losing the tax-free status. However, you do need to be careful – if you close your existing ISA down and then look to move the money into another account you will lose the tax-break. You therefore need to make sure that your current provider treats it as a transfer and not an account closure.

Not all cash accounts accept transfers however, so this is something worth bearing in mind when comparing deals.

If you have money in a stocks and shares ISA, you can also change your underlying investments without losing the tax-break. Say you picked a fund that has underperformed or is more volatile than you feel comfortable with, you could switch it to a different fund.

If you have money in a cash ISA account that is no longer paying a competitive rate of interest you can transfer it without losing the tax-free status

You can also transfer money from a cash ISA into an equity or bond-backed investment without losing the tax-free status. However, you cannot move from equities or bonds into cash.

 How can money be invested?

Many fixed-rate cash ISAs only accept a single lump sum deposit. However, most easy access and notice accounts allow money to be paid in at any time and many cash ISA rates are available on balances of as little as £1 or £10.

Many unit trusts, oeics and investment trusts also offer regular savings plans so that you can invest on a monthly basis.

It is worth keeping your money invested in ISAs for as long as possible and use any other savings first

You can therefore pay money into your ISA over the course of the tax-year. The only restriction is that you obviously cannot exceed your annual allowance.

 What about withdrawals?

Withdrawals are not usually permitted during the term of a fixed rate cash ISA (you will probably be penalised with a loss of interest if you do need to access your money during that time) and notice accounts obviously require you to give the provider warning before you make a withdrawal.

If you have money in an easy access cash account you can get at it whenever you need. You can also sell shares or units in managed funds at any time.

However, you will lose the tax-free status on anything you withdraw, so it is worth keeping your money invested in ISAs for as long as possible and use any other savings first.