Isa savers can transfer from 0.5% rate to 4% but ‘many don’t know’

Some Isa savers don’t even realise it’s possible to move their money to a different provider, fearing they will lose their tax advantages as a result.

Yet they won’t. Isa funds can be transferred to another provider with all their tax advantages intact, provided you follow the correct steps.

By doing that, Isa savers and investors could make their money worth a lot harder.

Savers and investors will be racing to use this year’s £20,000 tax-free Isa allowance before April’s deadline, but that’s not all they should be doing.

They should also check out their existing Isas to see how well they are performing and whether they can get a better return by moving their money elsewhere.

Switching existing Isas is more straightforward than people think. If your current holdings are underperforming, you could generate thousands of pounds in extra interest or stock market growth.

Yet many savers don’t realise it’s possible while nearly half wrongly believe they will lose their tax benefits if they switch, according to new research by investment platform InvestEngine.com, exclusively for Express.co.uk.

In fact, you can transfer your Isa from one provider to another at any time, with no impact on the current year’s allowance.

The Isa tax wrapper was launched way back in 1999 and is hugely popular. Incredibly, more than 27 million adults now have an account.

Those who have used their allowance year after year may have squirrelled away tens or even hundreds of thousands of pounds. 

There are several thousand Isa millionaires.

Yet two in five say they do not bother to switch when they see a better deal, and many have never moved their money at all.

That adds up to around 11 million savers and Andrew Prosser, head of investments at InvestEngine, say they should switch now to take advantage of today’s high interest rates and strong financial markets. “Isa transfers retain their tax benefits when moved to a new provider and do not count towards this year’s £20,000 limit either.”

By switching, cash Isas savers could get extra interest totalling almost £4,000 over the next five years, Prosser said.

The median cash Isa holding is £22,000 but the average interest paid is a meagre 0.51 percent, worth £112 a year.

If a saver transferred that into Secure Trust Bank’s market-leading five-year fixed rate cash Isa, which currently pays 4 percent, they would increase their annual return to £880 a year, or £768 a year more.

Over the five-year term of the bond, their extra interest payments would total £3,840.

Savers can switch their money from a cash Isa to a stocks and shares Isa, or vice versa. Switching from a cash Isa to a stocks and shares Isa could generate much greater returns.

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Over the last decade, the average stocks and shares Isa has returned 9.64 percent a year, which is almost 19 times today’s average cash Isa rate, recent calculations from Moneyfarm show.

If recent performance is repeated over the next decade, too, the average cash Isa would increase £22,000 to £23,148.

However, a stocks and shares Isa would lift exactly the same sum to £54,720. That’s more than £30,000 more.

Isa switchers need to follow the correct process when transferring, Prosser said.

First, shop around to find the best deal, then request an Isa transfer form from your new provider. “Most cash Isa providers and investment platforms will take care of the admin on your behalf,” Prosser said.

Do not simply withdraw your money, as you will then lose that part of your tax-free allowance.

You do not have to transfer all the money you invested in previous years, you can just transfer some of it if you choose.

However, if you want to transfer money invested in an Isa during the current financial year, you must transfer all of it.

So make sure you know the rules to safeguard your Isa tax breaks.