What is a flexible ISA?

Many diligent savers may find the restrictive nature of the annual ISA allowance frustrating. However, a host of providers now offer a way around the strict deposit limits usually associated with ISAs. Known as a ‘flexible ISA’ this system lets you re-deposit any cash you have withdrawn from your account without it contributing towards your annual limit. This could seem like an attractive prospect that might draw you to a new provider, or an irrelevant add-on that will have little effect on how you spend and save your money. In this article we break down how a flexible ISA works, including the advantages and pitfalls, plus what kind of saver it will benefit the most.

How do flexible ISAs work?

ISAs can provide useful tax benefits to savers, but there are restrictions and rules too. The most significant is that you can only save up to £20,000 in one type of ISA per tax year.

The advantage of a flexible ISA is that if you deposit the full £20,000 at the beginning of the tax year, then withdraw some of it at a later date, you can put the money back before the end of the tax year. If your ISA is not flexible, there will be a strict deposit limit of £20,000, no matter how many withdrawals you make.

The logic behind this benefit is that you should not be penalised for saving money into an ISA just because you want or need to spend some or all of the money you have saved that year. In most cases the cash does not have to go back into the same ISA account. This means that you could withdraw money from your cash ISA and deposit it into your Stocks and Shares ISA. However, it does need to be completed in the same tax year, otherwise the deposit will count towards that year’s ISA allowance.

Keep in mind that withdrawals from some Stocks and Shares ISAs may incur fees. In addition, Lifetime ISAs are not flexible and you will be hit with a 25% penalty for withdrawing money before you turn 60 if you wish to pay for anything other than the deposit for your first home.

Can I transfer my existing flexible ISA?

You may find that a different ISA provider is able to offer you a higher interest rate on your savings, lower fees or better access to your money. In this scenario, you can switch your ISA to that provider whenever you choose, if it allows transfers of existing ISAs. It is important to note that an ISA transfer does not count as a new ISA subscription, so if you are transferring an ISA or ISAs from previous tax years, it will have no impact on your ISA allowance for the current tax year. Transferring to a new provider may however mean that you may miss out on some of the advantages of the flexible ISA rules.

For example, if you withdraw money from your existing flexible ISA and then subsequently decide to switch to a new provider that doesn't offer a flexible ISA, you will not be able to put the withdrawn money back into your account without it contributing to your ISA limit. Any deposits with your new provider will need to come out of your ISA allowance. This means that if you have already deposited £20,000 in that tax year, you will need to wait until 6 April to add any more money.

An exception could be if you have only transferred part of your ISA or you have another ISA with your original provider. In this case you may be able to deposit the money you withdrew earlier without it contributing to your ISA limit.

Which providers offer flexible ISAs?

Flexible ISAs are offered by a whole host of big-name banks, smaller building societies and investment platforms. You are more likely to find a flexible cash ISA than a flexible Stocks and Shares ISA, though both are available. Some institutions offer flexibility on all ISA products, while others come with exceptions and limitations. Here are the main providers that offer flexible ISAs. We have included any limitations you should be aware of and listed the well-known providers that do not yet offer flexible ISAs.

Which providers offer flexible ISAs?	Which providers do not offer flexible ISAs?
Aldermore	AJ Bell*
Bank of Scotland (Variable ISAs only)	Britannia
Barclays	Charter Savings Bank
Bestinvest	Co-op bank
Charles Stanley Direct*	Fidelity*
Clydesdale Bank (Flexi cash ISA only)	First Direct
Coventry Building Society (Easy-access ISA only)	Hargreaves Lansdown*
Ford Money	HSBC
Freetrade*	Interactive Investor*
Halifax (Variable saver ISA only)	Kent Reliance
IG	Leeds BS
Lloyds
	Moneybox
Metro Bank (Instant access cash ISA only)	NatWest
Nationwide
Newcastle BS	NS&I
Paragon Bank
Plum	Post Office
Principality BS (Variable ISAs only)
Skipton BS
Tesco (Instant access cash ISA only)
Trading 212	RBS
TSB	Santander
Vanguard
Virgin Money (Easy-access ISAs only)	Shawbrook Bank
Yorkshire Bank (Variable ISAs only)
	Tembo

This information is correct at the time of writing. You should confirm the flexibility of your ISA with your provider, as policy can change at short notice.

 

 

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