Why transfer from a Cash ISA to a Stocks and shares ISA?

With very low interest rates on offer in cash ISAs, it's worth considering whether you could make your money work harder by transferring it into a stocks and shares ISA.

If your money is currently in a cash ISA, swapping to a stocks and shares ISA could potentially give you much better long-term returns. Providers are currently offering top rates of around 2.5% for instant access cash ISA accounts, meaning your money is barely keeping pace with inflation. Stocks and shares have generally offered greater returns than savings accounts in the past. This is especially the case over longer investment periods.

As an example, the chart below, shows that an investment of £1,000 a year in our UK Index Trust from December 1995 would have generated just under £13,500 more than the average savings account over the last 18 years.

 Savings Account v UK Index 

However, unlike savings accounts, the value of investments may fall as well as rise, which means you may get back less than the amount you invest. This can be seen by looking at the fluctuations over the last five years shown in the table below.

 Dec 08 to Dec 09Dec 09 to Dec 10Dec 10 to Dec 11Dec 11 to Dec 12Dec 12 to Dec 13
UK Index Trust percentage change* 29.1%14.4%-5.1%12.3%20.1%
Savings account percentage change**0.7%0.7%0.8%0.8%0.6%

Source: Lipper - as at December 2013. 

*These figures take into account the annual management charge and extra expenses, and assume any income is reinvested after tax.
** We’ve used Moneyfacts Instant Access £2,500 which is a representative bank account as a basis for the savings account.

Past performance is not a guide to future performance.

What are ISA transfers?

ISA transfers allow you to move your cash ISA and/or stocks and shares ISA from one company  to another whenever you want. You can transfer

  • The whole of your current year ISA
  • All or part of your previous years’ ISA accounts

How do ISA transfers work?

To make sure you keep your tax benefits, you will need to arrange a transfer rather than just taking your money out and reinvesting. Money in a stocks and shares ISA can only be transferred to another stocks and shares ISA. But your holdings in a cash ISA can be transferred to another cash ISA, or to a stocks and shares ISA. The transfers should be done in a way set down by HM Revenue & Customs, using a 'transfer history form'.

If you transfer an ISA you’ve paid into during the current tax year to a new provider, you must transfer the whole balance. For ISAs from previous tax years, you can choose how much to transfer.

What are the advantages of stocks and shares ISA investment?

A stocks and shares ISA is a good way of investing for the long term while making the most of tax benefits. It gives you a chance to spread your risks – for example by spreading your money between funds with different investment strategies such as index tracker funds, actively managed funds and /or mixed investments

Would transferring to a stocks and shares ISA from a cash ISA be suitable for me?

The independent Money Advice Service set up by the Government suggests that you should at least have three to six months of essential outgoings available in an instant access account to help cover you for emergencies.

If you have savings over and above this amount, and you don’t have debts, it can be a good idea to find a home for your “non-emergency” savings that could give you a better return. Unlike a cash ISA, a stocks and shares ISA should be considered a medium to long-term investment, ideally at least five years. Please bear in mind that once you transfer from a cash ISA to a stocks and shares ISA you can’t go back and the value of investments may fall as well as rise, which means you may get back less than the amount invested.

Important information about transferring ISAs

  • Your transfer will take a minimum of 14 days.
  • Whilst your ISA transfer is being processed you can’t transfer it back, but you can withdraw your money and we won’t charge you for doing this.
  • If you wish to transfer the current tax year's cash ISA or stocks and shares ISA to us you'll need to transfer the full amount you've invested in your ISA.
  • If you transfer to a stocks and shares ISA you can't transfer the money back to a cash ISA later.

What’s the minimum transfer?

  • Minimum transfer £500.
  • Transferring to us will not affect this tax year's allowance and you won't lose out on your tax benefits.

Why invest with Legal & General Investments?

  • We don't charge a transfer fee but your current provider may.
  • Legal & General is one of the largest investors in the UK stock market.
  • We manage over £6 billion of ISA funds on behalf of our customers – making us one of the UK's largest stocks and shares ISA managers.
  • Voted best investment ISA provider 2012/2013 at The Personal Finance Awards.

Risks

  • Unlike most savings accounts, which usually offer instant or short term access to your money, you should be prepared to invest in a stocks and shares ISA for at least five years.
  • Stocks and shares ISAs do not offer the same level of security for your money as most cash ISAs.
  • Some of our funds may invest overseas. Changes in exchange rates between currencies may cause the value of your investment and the level of any income to rise or fall.
  • Whilst your ISA transfer is taking place you won't benefit from any rise in the markets and you could lose some income or growth.
  • If you withdraw the money during an ISA transfer, you may not get back the full amount that you transferred and you will lose this amount from your ISA allowance.
  • The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances.
  • The value of your investment and any income from it may fall as well as rise and is not guaranteed.
  • You may get back less than you invest.
  • Although there is no fixed term you should consider ISA and unit trust investments to be medium to long term, ideally five years or more.

Download an ISA transfer form

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