Transferring from an ISA to a savings account

Moo1313

Hi all, potentially a daft question, but is anyone aware if it is okay to transfer from an ISA to savings account? The interest rate on the ISA is terrible, I've found a savings account with a good rate so am looking to transfer funds. 

r6mile

Yes you can just withdraw from your ISA into a normal account but keep in mind that the money will lose its tax-free status. A better choice - depending on the account - might be to transfer this ISA into another ISA with a better rate.

xylophone

Have you checked ISA rates and considered your tax situation?

See  all savings tables for ISA/non ISA\fixed/easy access here.

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

Remember that if you wish to transfer into another ISA, you must ask the new provider to organise the transfer.

jimjames

Moo1313 said:

Hi all, potentially a daft question, but is anyone aware if it is okay to transfer from an ISA to savings account? The interest rate on the ISA is terrible, I've found a savings account with a good rate so am looking to transfer funds. 

To be clear, it's not possible to transfer from an ISA unless it's to another ISA. You can draw the money out of the ISA though, losing it's tax free status and pay it into any other account if you want. Whether that's a good idea or not depends on the interest rates and your tax status. If your ISA has a poor rate then you can transfer to another ISA that has a much better rate.

Slinky

I had an ISA paying a very low rate which was a 5 year account. I tranferred it to another supplier with a much better rate. I lost 90 days interest but it was worth it to get the much better rate elsewhere.

One thing I rarely see mentioned which may be a factor is my husband is a 40% tax payer, I'm a non tax payer, but I keep my money in an ISA as if something happened to me, my ISA would retain its tax free status when my OH inherited it.

RosieRooBear

Slinky said:

One thing I rarely see mentioned which may be a factor is my husband is a 40% tax payer, I'm a non tax payer, but I keep my money in an ISA as if something happened to me, my ISA would retain its tax free status when my OH inherited it.

Thanks @Slinky, for that good point, I’m a non-tax payer and was thinking of transferring my ISA into a normal savings account to gain a better interest rate. Hadn’t even thought of the consequences if something was to happen to me, as if it did it would mean my husband would then pay tax on it. I’ll now keep it protected in an ISA 😊

eskbanker

Slinky said:

One thing I rarely see mentioned which may be a factor is my husband is a 40% tax payer, I'm a non tax payer, but I keep my money in an ISA as if something happened to me, my ISA would retain its tax free status when my OH inherited it.

But how much interest are you sacrificing while you're alive, in order to potentially deliver a benefit when you're not?  Obviously everyone's circumstances will differ, so I could see justification in your approach if you had a short life expectancy and both of you were using ISA allowances in full every year....

RosieRooBear

eskbanker said:

Slinky said:

One thing I rarely see mentioned which may be a factor is my husband is a 40% tax payer, I'm a non tax payer, but I keep my money in an ISA as if something happened to me, my ISA would retain its tax free status when my OH inherited it.

But how much interest are you sacrificing while you're alive, in order to potentially deliver a benefit when you're not?  Obviously everyone's circumstances will differ, so I could see justification in your approach if you had a short life expectancy and both of you were using ISA allowances in full every year....

You make a great point too @eskbanker. I was critically ill last year and nearly died, which has made me have a different perspective on life and how quickly things can change. However I would like to think I’ve got another 20 years minimum left, so maybe I should take each day as it comes and do what’s best in the here and now and maximise the interest while I can.

Slinky

eskbanker said:

Slinky said:

One thing I rarely see mentioned which may be a factor is my husband is a 40% tax payer, I'm a non tax payer, but I keep my money in an ISA as if something happened to me, my ISA would retain its tax free status when my OH inherited it.

But how much interest are you sacrificing while you're alive, in order to potentially deliver a benefit when you're not?  Obviously everyone's circumstances will differ, so I could see justification in your approach if you had a short life expectancy and both of you were using ISA allowances in full every year....

Well I've just renewed my isa at 5.84%, which given the best non-isa rate is just over 6% is pretty close. Both of us are using full allowance. Potentially if I held the cash outside the ISA I'd be pushed into paying some tax on some interest.

DavidAC

If you just want to keep the ISA allowance in case you need it in future, you could transfer your ISA to a flexible ISA  (if it is not already). Then you can take the money out and put it in a higher paying non ISA. You would have to put it back into the ISA before the end of the tax year though to keep the ISA allowance so no good if you move it to anything other than an easy access account.

friolento

DavidAC said:

If you just want to keep the ISA allowance in case you need it in future, you could transfer your ISA to a flexible ISA  (if it is not already). Then you can take the money out and put it in a higher paying non ISA. You would have to put it back into the ISA before the end of the tax year though to keep the ISA allowance so no good if you move it to anything other than an easy access account.

The currently best flexible ISA is a 4.7% from Skipton. Best available easy access account without withdrawal restrictions is the 5.1% Leed limited issue.

On £20k, you would make £940 interest. In the 5.1% Leeds account, you would receive £1,020 (give or take a couple of pounds as your money would not be in the account for 365 days). £20 of this would be taxable at 20% if you are a BR tax payer, so total interest would be max £1,016. A difference of £76, so well worth the effort of shifting the money about twice a year. You could eke out a few pounds more if you went with one of the Notice accounts.

If you are a HR tax payer, you'd have to pay 40% tax on £520, leaving you with just £812 interest from the Leeds account. So you'd not want to play about with the flexibility, and instead go with an ISA, one with a better than 4.7% rate, to start with.

The results will differ if you have less than £20k, so doing your numbers is essential before deciding what to do.