What is a flexible Cash ISA?

Withdraw and replace money without it impacting your ISA allowance

If you’re looking for a new Cash ISA, you might be wondering what it means when it’s ‘flexible’? Well, it’s a feature that some providers offer that could be helpful, depending on how you save. 

Here’s everything you need to know about flexible ISAs and whether it might be right for you.

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What’s a flexible ISA?

In a nutshell, a flexible ISA lets you withdraw money and repay it within the same tax year without it impacting your £20,000 annual ISA allowance.

So, say you’ve contributed £15,000 into your ISA this financial year and withdraw £5,000, leaving you with £10,000 in your account. If you’ve got a flexible ISA you’d still be able to deposit a further £10,000 before the end of the tax year, no problem. 

But if you had a non-flexible ISA, you’d only have £5,000 left of your annual allowance. 

The key thing to remember here is that if you’ve got a flexible ISA, the rules only apply to that specific ISA. So if you make a withdrawal, you’ll need to repay the money into that account.

You also need to return the cash in the same financial year, which runs 6 April to 5 April.

Do all providers offer a flexible ISA?

No, they don’t. Despite the flexible ISA rules being introduced in 2016, providers don’t have to apply them. But lots of them do. 

You can also get flexible Stocks & Shares ISAs, but since the value of investments can go up or down, really you don’t want to be taking money out of those accounts too often. So the feature is more useful with Cash ISAs.

You also can’t get flexible Lifetime ISAs or Junior ISAs since there are restrictions on when you can withdraw the cash.

What providers offer flexible ISAs?

Some providers that do offer Cash ISA flexibility include the below:

• Bank of Scotland
• Barclays
• CMC Invest
• Coventry Building Society
• Halifax
• Lloyds
• Metro Bank
• Monument Bank
• Nationwide
• Newcastle Building Society
• Paragon Bank
• Principality Building Society
• Skipton Building Society
• Tesco Bank
• Trading 212
• Vida Savings
• Zopa

Of course, you’ll want to make sure you’re getting a decent interest rate, so do compare options at all banks and building societies. For the top ISA rates, see our best buy ISA tables, and you’ll also be able to see whether the account is flexible or not.

Do I need a flexible ISA?

No, you don’t. I see a flexible ISA as a ‘nice to have’ rather than something that’s totally necessary and how valuable the feature is depends on how you tend to – or are planning to – save.

If you think you’ll probably use your full £20,000 ISA allowance – or near enough – and you’re likely to need access to it during the next tax year, you could consider a flexible ISA, although you’ll be taking a hit on the rate.

BUT, and this is a big but, before you do this, you might want to ask yourself if you even need a Cash ISA in the first place. I know, I’m really throwing a spanner in the works here. 

There are plenty of reasons to get a Cash ISA, including protecting your money from tax in years to come (which has become more important given the Labour’s suggestion that Cash ISA changes could be on the cards) and particularly good rates at the moment, but there might be better options for you at the moment. 

For example, if you’re a basic-rate tax payer and the interest you earn on your savings is unlikely to breach your £1,000 annual Personal Savings Allowance, you could opt for one of our top easy-access savings accounts. That way you’ll be able to make as many withdrawals and deposits as you like. Even if you go for a limited access savings account, you’ll still be able to access your money a few times a year.

The flexible ISA savings hack

Of course, if you’ve got the money and you need access to it, you can always keep a flexible Cash ISA open and move your money in and out of it, to take advantage of better rates elsewhere while holding onto your tax protection.

It could work like this. You could open an easy-access Cash ISA that offers flexibility and accepts ISA transfers and move your old ISA money into it. 

Say you had £40,000 and transferred it to the new flexible ISA, you’d now have £40,000 to play with. You could then move this money out to another, non-ISA account paying a higher interest rate while still holding space for that cash in your flexible ISA.

Then you can move your money back into the same flexible ISA by 5 April of the current tax year without impacting your allowance. Plus you’ll have been able to add up to £20,000 of your new ISA allowance to this or a different ISA. Potentially you could pay £60,000 back into the flexible ISA and it’ll all be tax-free and flexible. 

When the new tax year starts, you can repeat the same process again.