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Switching cash ISAs

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If you want to get the most from your savings then it’s likely you will have to transfer your ISA at some point. To do this it’s essential to follow the golden switching rule… (Updated 7/8/09)

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As with any savings account, we recommend that you keep a close eye on the interest rate you are receiving on your ISA and if there are better deals out there, get switching!

Indeed, many cash ISAs come with tempting bonus rates that end after a year, so it makes sense to make the most of them then transfer your money elsewhere when the special offer ends.

In this guide we show you how to switch your cash without losing its tax benefits

• The golden rule of switching ISAs
• Things to watch out for when transferring your ISA

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The golden rule of switching ISAs

Switching ISAs should be fairly straightforward but to make sure you don’t lose your tax free entitlement, it’s essential that you follow the golden rule:

Never withdraw money from your cash ISA!

If you withdraw any money from your existing ISA, even with the intention of transferring it to another ISA, that cash will lose its tax free status.

Instead, to switch ISAs whilst keeping your cash in its tax free wrapper, you will need to arrange a transfer. You should ask the fund manager of your new ISA to set this up for you. Once you have filled out a transfer form they will arrange for the money to be moved, keeping its tax free status intact.

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Things to watch out for when transferring your ISA

As well as the golden rule, there are three key things to be aware of when it comes to switching ISAs:

• Transfer types – You can transfer a cash ISA into another cash ISA or into a stocks and shares ISA, but stocks and shares ISAs can only be transferred to another stocks and shares ISA.
• Splitting – You can split ISA balances from your previous years’ allowances between different providers, but if you want to switch your current year’s ISA it must be transferred whole.
• Transfer penalties - If you are stuck with one of the few ISA providers that penalises you for transfers then it’s important to weigh up the benefit of switching (i.e. better rates) against the transfer penalty (usually forfeited interest).
• Timing – If the interest on your ISA is paid annually, it makes sense to switch it shortly after this annual interest payment has been made.

Do it right, and switching ISAs can result in much improved returns. Good luck!

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