Flexible ISAs allow savers to take money out and put it back within the same tax year without it counting towards their annual ISA allowance.
If savers continue to choose an ISA provider based top rate available, they could miss out on substantial tax-free interest.
ISAs offer savers the ability to grow their money free from income and capital gains tax.
Coupled with the flexibility some offer, the range of investment options available within an ISA and the fact that every eligible adult has the same annual ISA allowance means they remain a popular account.
As the tax year end gets closer, many people may be planning ahead as to what ISA they will use from April 2024, and an expert has suggested a perfect, “little known option”.
Sylvia Morris, savings expert explained to This is Money the benefits of opting for a flexible ISA.
She said: “It’s a little-known secret that some easy-access ISAs possess a quality that makes them far superior to their rivals.”
Flexible Isas allows people to take money out and put it back within the same tax year without it counting towards their annual ISA allowance.
For example, if someone had £20,000 in an ordinary easy-access ISA and took out £1,000, they wouldn’t be able to replace the £1,000 they removed a few weeks later.
Instead, savers would have to wait until the following tax year to put it into their ISA, missing out on tax-free interest in the meantime.
Ms Morris said: “However if you had a flexible ISA, you could take money out and put it back in as often as you wished within the same tax year. This quality is particularly useful if your savings tend to fluctuate considerably as you put money away and spend it.
“It is also helpful to those with higher balances as, if you’re saving just a few hundred pounds every year, you are unlikely to breach your £20,000 annual allowance even if you regularly withdraw and replace money.”
To find out if one’s ISA is flexible, people have to scan through the small print as most providers don’t make it obvious.
The top-paying accounts don’t tend to be flexible but this is not always the case.
One of the “best payers on the market,” Ms Morris found, is flexible — Zopa Bank Smart Isa at 5.08 percent.
However, easy-access ISAs that are not flexible — and which pay between 4.7 percent and five percent include:
- Cynergy Bank’s online Isa
- Family Building Society’s market tracker Isa
- Virgin Money’s defined access Isa
- Charter Savings Bank’s easy-access Isa
- Kent Reliance’s easy- access Isa
- OakNorth Bank’s easy -access Isa
- Newcastle Building Society’s double access Isa
- Shawbrook Bank’s easy-access Isa
- Marcus’s cash Isa and Leeds Building Society’s limited issue online access Isa.
She continued: “The next best flexible rate is Ford Money’s flexible Isa at an above average 4.4 percent. On the High Street, Swansea Building Society (4.25 percent) and Skipton Building Society (3.8 percent) are good payers.
“From the new tax year, which starts on April 6, there will be even more to differentiate Isas because you will be able to make partial transfers from the Isa you are paying into in the current tax year.
“At the moment, if you wish to transfer your Isa you must shift the lot. However, it is not clear whether all providers will offer this freedom.”
It should be noted that savers may also be able to make transfers if a spouse or civil partner dies. In this case, an additional subscription ISA allowance gives people an extra allowance equal to the amount in the person’s ISA.
If they leave an ISA worth £40,000, they would have the normal £20,000 allowance and an extra £40,000 allowance in a tax year.
People can transfer their ISAs between banks and building societies by contacting their new provider, but they should make sure to check whether they accept transfers.
