When markets are fluctuating, it can be very tempting to do the investment equivalent of running for the hills.
What happens if I take money out of my isa?
Each type of ISA is different, and depending on which account you hold, there may be restrictions or charges for making withdrawals.
Taking money from cash ISAs
Making cash withdrawals won’t lose you any tax benefits, but it’s important to check the terms of your ISA carefully as fees and penalties may apply for some accounts.
- Instant Access: With an instant access cash ISA, you can withdraw money when you want without any restrictions. So, if you think you’ll need funds at short notice, this may be your best option.
- Fixed rate: With fixed term cash ISAs, you lock your money away for a set period in return for a better interest rate. While you can withdraw money from a fixed rate ISA, you will usually have to pay a penalty. Typically, you will lose a set number of days’ interest, usually 60-120 days.
- Flexible: New rules that came into effect in April 2016 mean that if your ISA is flexible you can withdraw money and replace it during the same tax year without it affecting your current year’s allowance. Say you deposit the full £20,000 and then take out £5,000, you can replace the £5,000 at a later date in the same tax year without breaching your allowance, even though you will actually have deposited £25,000 in total.
- With a flexible fixed term ISA, you can make a limited number of cash withdrawals, typically up to 10% of the balance.
- Not all providers offer flexible ISAs though, so check first before withdrawing cash.
Taking money from stocks and shares ISAs
If you’ve invested in the stock market, you can sell your funds and shares whenever you want, and get the proceeds paid into your bank account. Be aware that if you need to make an emergency withdrawal from a stocks and shares ISA, there’s a risk that the value of your investments will have gone down.
At present, most investment platforms don’t offer flexible stocks and shares ISAs. So, if you withdraw money and reinvest it at a later date within the same tax year, it will count towards your annual ISA limit.
You can transfer money from a cash ISA into a stocks and shares ISA if you want to increase the amount you invest.
Taking money from Lifetime ISAs
As this type of ISA is designed for saving for retirement or buying your first home, there are strict rules on when you can withdraw. You won’t be able to take money out until you turn 60 without paying a penalty unless it’s specifically being put towards a deposit on a first property worth up to £450,000. You can also withdraw your money if you are terminally ill and have less than 12 months to live.
The withdrawal penalty will be 25% of the amount you take out. This means that for every £100 you withdraw you would only actually get back £75 as you would be deducted £25.
Transferring your ISA
If you want to move your ISA from one provider to another, it’s important that you arrange an ISA transfer rather than withdrawing your money and paying it into a new ISA account. That ensures you won’t lose your tax-free benefits.
Not all ISA providers will allow you to transfer your ISA balance from previous tax years, so always check if you’re thinking of switching. It’s also worth noting that your current provider might charge a penalty fee if you transfer your cash ISA to another provider.