ISAs are the foundation of most people’s wealth creation plans. They can mean the potential for higher returns, because there is no tax to pay on the money your money makes.
But not all ISAs are created equal. With the potential to invest up to £20,000 in this tax year 2021/22, at Continuum we are looking at whether you need to move your ISA.
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Is last year’s winner now an also ran?
There are many types of ISA, and many ISA suppliers. But market conditions change, and an ISA which was a top performer a few years ago might be much less rewarding now in the aftermath of Covid. For example, these days there are Cash ISAs that pay as little as 0.10% interest.
You need to be sure the provider you use is making your money work as hard as possible.
The first thing to remember is that you don’t need to invest more money in the fund you chose least year. There is nothing to stop you from choosing a new ISA each year. The second thing to be clear on is that you don’t have to leave money in an underperforming fund. You can transfer savings or investments you already have inside your ISAs to where they can work the hardest for you.
How do ISA transfers work?
Once you have put money into an ISA, it has special tax-free status. If you transfer it to another ISA, this 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 for tax year 2021/2022.
You can transfer to a better performing provider, or to a different type of ISA altogether. You can move from cash into Stocks & Shares, or from Stocks & Shares into cash. But most people will want to move out of Cash ISAs, which now mean low interest rates and poor returns, into Stocks & Shares ISAs with the potential for exciting returns as the economy recovers from Covid.
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.
How to transfer an ISA
There is a right and a wrong way to transfer funds. The wrong way is to withdraw money from an ISA. You lose the tax benefits you have built up and it 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 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. You should be sent a short ISA transfer form to complete. The transfer should take under two weeks if you had a Cash ISA, or slightly longer with Stocks and Shares ISAs.
Get some expert help
You can transfer your ISA from one provider to another with no penalties, but there are some restrictions. For example, if your Cash ISA has a fixed term, you may face a penalty if you withdraw funds early. The rules also 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. Other restrictions may apply such as transferring cash and assets from a Lifetime ISA to a different ISA before the age of 60, you’ll have to pay a withdrawal fee of 25%.
You also need to look carefully at what an ISA provider is offering, what the true potential is and what they are charging for their services.
You need professional help from Continuum to make the most of your ISA investments before the end of the tax year. Call us now.
Fortunately at Continuum, we know the ISA market – and we know how to help you make the choices and the transfers that are right for you.
If you are ready to transfer your ISA, make your first move a call to us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Equity investments do not afford the same capital security as deposit accounts.