I switched my easy-access cash Isa to a new provider earlier this year, but with rates continuing to go up, I now want to move my Isa again to take advantage.
Switching to the best deal could see my rate move from 2.5 per cent to 3.5 per cent.
Before I move my money, I’m keen to find out if there any potential limitations or downsides to switching Isa provider multiple times in a year in order to chase the best rates.
How many times I can move my cash Isa in a year, are there any rules on how much I can transfer, and what if I want to keep adding funds to it?
Also, how long does it usually take to transfer an Isa to a different bank – and will I still be paid interest during the transfer process?
The tax protector: Cash Isas make it possible to save up to £20,000 each tax year whilst shielding any interest you earn from tax
Ed Magnus of This is Money replies: When interest rates are rising, it’s so important to ensure you’re working your savings as hard as possible.
Easy-access cash Isa rates is one area that we are seeing continuous improvement in at the moment.
The average easy-access cash Isa rate is currently 2.29 per cent, according to Moneyfacts, up from 1.66 per cent at the start of the year and up from as low as 0.27 per cent at the start of last year.
With a 2.5 per cent rate, your interest is already above average – but you are quite right to think about transferring, given it is now possible to do much better.
The best easy-access cash Isa rate is paying 3.51 per cent. On a £20,000 savings pot that would equate to earning an extra £208 of interest over the course of a year, compared to if you kept it in an account paying 2.5 per cent.
If you were prepared to opt for a fixed-rate Isa, you could do even better and secure up to 4.41 per cent – but you would need to lock your money away for several years, which may not suit you.
Best cash Isa accounts at a glance
There are none that beat inflation, however, make sure you shop around for the best returns possible.
Easy-access: Cynergy Bank – 3.5%
Limited-access: Paragon Bank – 3.51%
One-year fixed-rate: Shawbrook Bank – 4.32%
Two-year fixed-rate: Newcastle BS – 4.4%
Three-year fixed rate: Virgin Money – 4.41%
How many Isas can I open in a tax year?
As things stand, you can only open one cash Isa in a given tax year, but transferring an Isa won’t count as opening a new one.
An Isa transfer allows you to move your money from one provider to another without losing the tax-free benefits.
Moving old Isas to a new provider won’t count towards this allowance, as the £20,000 limit only applies to money paid in from outside an Isa.
You can transfer some or all of your Isa allowances from previous years. However, if you’d like to transfer your current year’s allowance, you must transfer the entire balance.
Under current rules, Isa providers must allow transfers out, but there is no obligation to accept transfers in. Therefore, not all Isa providers do – so it’s always worth checking this before switching.
Also bear in mind that some cash Isa providers will charge a penalty for closing the account. This is particularly the case with fixed-term deals which are yet to finish.
It’s always worth checking what these fees are so you can weigh up whether the transfer is cost-effective.
To provide some expert insight, we spoke to Anna Bowes, co-founder of the advice website Savings Champion.
Can I transfer my Isa more than once a year?
Anna Bowes replies: It’s great to hear that you are keeping a close eye on your Isa accounts and are prepared to transfer it in order to earn more interest.
There is no restriction on the number of times that you can transfer your cash Isa, although it can take up to 15 days for the transfer to take place which deters some people from doing it too often.
Whilst there is no restriction on the number of transfers you can do, the amount you can transfer depends on the year in which the original Isa was opened.
If you want to transfer the current tax year’s subscription, you must transfer all of it. But any previous tax year’s Isa cash – regardless of whether it’s been transferred to a new Isa recently already – can be partially or fully transferred.
However, not all providers allow a partial transfer out. They may insist that instead the Isa is closed and all funds transferred elsewhere.
Free to chop and change: there are no limits on the number of times you can transfer a cash Isa in a given year so you should be able to transfer as many times as you like
Are savers paid interest during an Isa transfer?
Anna Bowes replies: There may be a penalty to pay if you request the immediate transfer of a notice Isa or a fixed term Isa before maturity.
During the transfer process your funds should be with one provider or the other, so interest should be paid – although there may be some time that the funds are in transit, and sometimes funds are transferred via a cheque in the post.
That said, some providers, such as Nationwide, pay interest from the day they receive the application, so effectively for a period of time customers could be earning interest from both the old provider and new.
Check with your current provider about when your funds may or may not be earning any interest.
Your cash Isa transfer should take place within 15 days – complain if it’s not been done.
When can I add new funds to an Isa?
Anna Bowes adds: Regarding adding new funds to the Isa after you have made a transfer, this is possible as long as you keep to the Isa rules.
So, you can only subscribe to one cash Isa a year – this means new money that has been deposited from a non Isa account.
And you cannot deposit more than the annual Isa allowance which is currently £20,000.
Again, this does not include any cash Isa money from previous tax years that is being transferred.
How transferring a cash Isa works
Transferring an Isa is a fairly simple process. First, open an Isa account with a new provider. Second, let the new provider know that you want to transfer an existing Isa into it.
The new provider will send you an Isa transfer form, either online or by post, and once completed and returned, your new provider can then complete the transfer for you electronically or by post.
The process should take no more than 15 days for cash Isas.
When Isas are transferred, they go with a transfer history form which details how much of the money is from the current year’s subscription and how much is from previous years.
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