Two-thirds of ISA holders in the UK intend to switch providers this year, according to new research from FinecoBank. What could be the reason for this increased desire to change providers? What are the benefits of switching providers? And what are the risks? We take a look.
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Why do two in three people plan to switch ISA providers?
According to Fineco’s research, 74% of people have an ISA. What’s interesting, however, is that two-thirds of those surveyed intend to switch ISA providers this year.
Fineco’s research also reveals that 60% of people have modified how they save money in the last 12 months. Their findings also show that 53% plan to increase their savings. The same proportion of respondents, 53%, stated that they intended to maximise their ISA contribution.
What we can conclude from all these findings, perhaps, is that the Covid pandemic has brought savings into sharp focus. Brits are undoubtedly more eager than ever to not only save money but also to do so in the most efficient way possible.
Why switch ISA providers?
There are many reasons you might want to change ISA providers. Switching to a new ISA provider could mean:
- Lower fees and charges
- A better service
- Exposure to a wider range of investment choices (since the range of investment on offer can vary between providers).
You may also want to switch because you want to consolidate your accounts. Keeping all of your investments in one place could make it easier to monitor and manage them.
And with so many financial institutions now offering amazing deals and rates, it is not surprising that a large number of people may be considering switching providers.
Fineco, for instance, has a new offer whereby anyone who opens a new Fineco stocks and shares ISA or transfers to a Fineco ISA between 3 March and 30 June 2021 will pay no fees for the entire 2021/2022 tax year. Because an ISA also comes with a tax wrapper, it means that you get to keep more of the gains from your investment.
Remember, however, that tax rules can change in future and their effect on you will depend on your individual circumstances.
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What does it take to switch or transfer an ISA?
When it comes to transferring your ISA or switching providers, there are certain steps you need to follow in order to maintain its tax-free status.
For example, don’t just close your existing account, withdraw your savings and then open a new account and deposit your money. This will result in your savings losing their tax benefits.
Instead, once you’ve found a new ISA provider and confirmed that they accept transfers, ask them to set up the transfer. This will ensure that your funds remain tax free.
You should use this procedure for all kinds of ISA transfers, including transfers:
- Between providers
- From one product to another with the same provider
- From one type of ISA to another (e.g. a cash ISA to a stocks and shares ISA and vice versa)
You can make as many transfers as you want each tax year as long as you follow the outlined procedure.
However, there are other rules to be wary of. For example, you can transfer an ISA opened in the current tax year, but you have to move your entire balance to a new provider to retain its tax-free status.
For more on ISA transfers, check out our guide to ISA transfer rules.
Are there downsides to switching ISA providers?
The only drawback is that some providers might charge you a fee or penalty for outward transfers. So, check for any fees or charges ahead of time to determine whether the switch is worthwhile.
