If you’re looking to take out an Individual Savings Account (ISA), you may see that some are described as “flexible” ISAs.
This simply means that you can withdraw money from the ISA and replace it in the same account without affecting your annual ISA allowance.
Flexible ISA rules were introduced by the Government in 2016 so savers wouldn’t be penalised if they needed to dip into their ISA savings.
Read on to find out how flexible ISAs work and whether they could be useful for you.
A flexible cash ISA allows you to withdraw money and replace it back into your account without it counting towards your annual £20,000 ISA allowance, as long as you do this in the same tax-year.
For example, if you deposit £15,000 into an ISA, you have £5,000 of your ISA allowance remaining for that tax-year. If you withdraw £10,000 from your account, a flexible ISA will allow you to pay in £15,000 until the end of the tax-year (made up of the £10,000 you withdrew and the £5,000 left of your allowance).
By contrast, a “non-flexible” ISA will count any deposit into your account towards your ISA allowance. So, using the above example, after withdrawing the £10,000, you would only be allowed to pay in the £5,000 you have left in your ISA allowance.
If you withdraw money from a flexible ISA that you deposited in a previous tax-year, this also won’t affect your current ISA allowance.
For example, you might have £30,000 in your flexible ISA that you saved from previous tax-years, but you haven’t deposited any money in the account in the current tax-year. If you withdrew £10,000 from your ISA, you could replace this money in the same tax-year and still have your full annual £20,000 ISA allowance available to use.
Bear in mind that you need to replace the money in the same account and in the same tax-year that you made the withdrawals to take advantage of the flexible rules.
Only cash ISAs, stocks and shares ISAs and innovative finance ISAs can be flexible. However, not all these types of ISAs will apply flexible rules. It’s up to individual providers whether they offer flexibility, so it’s worth checking the rules before opening an account.
Flexible rules don’t apply to Lifetime ISAs or Junior ISAs.
The key benefit of a flexible ISA over a non-flexible ISA is that you can access the money you have saved into your account without worrying about how it will affect your ISA allowance.
So, for example, you could withdraw some of the money you have saved in your ISA to cover an unexpected cost, such as emergency repairs. And, as long as you replace the money you’ve withdrawn into the same account in the same tax-year, your ISA allowance and tax-free perks won’t be affected.
The question of whether a flexible cash ISA is worth getting depends on your individual situation and how likely you are to want access to the money in your ISA.
If you think you’ll use most of your ISA allowance or need to dip into your ISA throughout the year, a flexible ISA is likely to be a better option than a non-flexible ISA, as you can withdraw money and replace it without affecting your ISA allowance.
However, even if an ISA is flexible, it’s worth checking if there are any other restrictions as some providers may reduce the rate if you make multiple withdrawals in a 12-month period, for example.
If you’re unlikely to use the majority of your full annual ISA allowance or you’re not planning to use the money in your ISA, it may not be so important for it to be flexible. Instead, you may prefer to save into an ISA that isn’t flexible but pays a higher rate or has other features that are more important for you.
It’s also worth considering whether a savings account could be more appealing than an ISA. Savings accounts typically pay a higher interest rate than ISAs so, if you’re not in danger of going over your Personal Savings Allowance (PSA), a savings account could be worth considering instead.
Read more: Cash ISAs vs savings accounts
While you can transfer a flexible ISA to another ISA, you should check how this will affect your annual allowance.
If you want to transfer a flexible ISA from the current tax-year, your existing provider will tell the new provider how much of your allowance you have left to use. This figure will be the amount you’ve deposited in the ISA, minus any withdrawals.
For example, if you deposited £10,000 in your account and withdrew £5,000, then requested a transfer, the provider will say that you have used £5,000 of your allowance. Therefore, you would be able to deposit up to £15,000 in your new ISA until the end of the current tax-year.
However, if you’ve withdrawn money from a previous tax-year and plan to replace it, you should do this before starting the transfer.
If you don’t replace this money, you won’t be able to carry over your “flexible allowance”. So, any money you deposit into your new ISA will count towards your ISA allowance for the current tax-year.
Our ISA charts are regularly updated so you can see the best rates available, whether you’re looking for an easy access ISA, a fixed-rate ISA or a notice ISA.
For a flexible ISA comparison, click “view further details” to see if flexible rules apply to a particular account.
Flexible ISA accounts can pay competitive rates and may even offer some of the leading ISA rates. When comparing the top ISAs, make sure you check if flexible ISA withdrawal rules apply if this feature is important for you.
Many providers offer flexible ISAs, but there are still quite a few that don’t.
On our charts, you can see the different flexible ISA providers by clicking “view further details” next to the relevant account.
You can transfer funds from one ISA into a flexible ISA (assuming the provider accepts ISA transfers). You can also move money between flexible ISAs to access a more competitive interest rate, for example. Make sure you follow the ISA transfer process and don’t withdraw the money yourself, otherwise this would affect your ISA allowance.
Theoretically you can make as many withdrawals from and deposits into a flexible ISA as you want, as long as your total deposits don’t exceed your annual ISA allowance. However, some providers may pay a lower rate if you make a certain number of withdrawals per year, so check the terms before opening an ISA.
Yes, there’s no limit on the number of cash ISAs you can have, so you can have multiple flexible ISAs. These can be cash ISAs that you opened in previous tax-years or, since 6 April 2024, you have been able to open more than one cash ISA in the same tax-year.
See our guide on how many ISAs you can have.
Nothing will happen if you don’t replace any money you’ve previously withdrawn from a flexible ISA, it just means your balance will be lower. Bear in mind that, if you don’t replace any money you’ve withdrawn from a flexible cash ISA within the same tax-year, you won’t be able to replace it in subsequent tax-years without affecting your allowance.
For example, imagine you deposit £20,000 into your flexible ISA and withdraw £1,000. If you don’t deposit £1,000 back into your account before the end of the tax-year, you will still only be able to deposit a maximum of £20,000 (your ISA allowance) into your ISA in the following tax-year. You won’t be able to put back the £1,000 you withdrew on top of your refreshed annual allowance.
No, flexible ISAs work the same for everyone, regardless of your income and tax status.
If you want to make regular, automatic deposits into a flexible ISA, you can set up a Direct Debit or standing order from your current account. However, you can’t typically make automatic withdrawals from a cash ISA. You’ll usually need to manually request a withdrawal when you want to access your money.
It’s up to individual providers to decide whether they offer flexible ISAs or not; the Government doesn’t require ISAs to be flexible. Providers will have their own reasons for not offering flexible ISAs, but there are still plenty of options available for those who want an ISA that follows flexible rules.
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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