A flexible ISA can be a great way to enjoy a more versatile approach to savings. With a flexible ISA you can withdraw money and return it to your account, without having an impact on your annual allowance. This is a great option if you want the flexibility to move your money around without financial penalties. 

In this article, we take a closer look at what a flexible ISA is, how it works, the benefits, whether a flexible ISA will suit your needs, and what alternative options are available.

What is a flexible ISA?

Just like the name suggests, a flexible ISA is an instant savings account that allows more flexibility than a traditional ISA. With a flexible ISA, you’re able to deposit and withdraw money from your account without it impacting your yearly tax-free allowance

The main stipulation is that you replace any money you take out within the same tax year. This is in contrast to a non-flexible ISA, where any money you put into the account (even if you have withdrawn funds) will still count towards your limit for that year.

How does a flexible ISA work?

It’s important to note that any personal ISA has an annual limit of £20,000. This is called your ISA allowance. It’s worth looking into how ISAs work in more detail if you’re considering opening one. 

Here’s an example, so you can understand how a flexible ISA works in practice. Let’s say you open a flexible cash ISA at the start of the tax year and deposit a sum of money. This eats into your annual £20,000. Later in the year, you withdraw some of that money from your flexible ISA and pay the same amount back in a couple of months later. As you have withdrawn and deposited the same amount within the same tax year and you have a flexible ISA – that amount will not be counted against your annual ISA allowance. 

However, if you had a non-flexible ISA, the amount you deposited back into the account would count towards your annual allowance.

What are the rules of a flexible ISA?

There are some rules to be aware of when it comes to your flexible ISA. The first rule is that not every ISA is flexible, so it’s important to always check the terms and conditions of any account you open and read the small print. 

You’ll need to check the type of ISA you’re interested in, as some ISAs won’t offer flexible terms, for example Help to Buy ISAs, Junior ISAs, and Lifetime ISAs.

Flexible ISA rules can apply to both Cash ISAs and Stocks and Shares ISAs. There will be individual terms and conditions within each ISA, which will vary depending on where you bank. For example, some ISAs may have limits on how much money you can deposit and withdraw.

What are the benefits of a flexible ISA?

The main benefit of a flexible ISA, is that you can access your money in an emergency should you need to withdraw funds. You can also re-deposit that money back into your account without disrupting the balance or impacting your annual ISA allowance. 

The option to access your money can be a pro or a con, depending on whether you want easy access to your savings or not. If you prefer to have the temptation removed, you may be better with a fixed rate bond, which secures your money for a set period of time. 

Another benefit of the flexible ISA is that, if you’re savvy with your flexible ISA, you can maximize your interest rates while enjoying the perks that ISAs offer. Technically, you could withdraw your ISA savings, place them in a high interest account, and then deposit them back into your flexible ISA account before the tax year closes, so your savings are tax protected. It’s always best to speak to a financial advisor about how to save with a flexible ISA.

Is a flexible ISA worth it?

A flexible ISA can be worth it if you’re seeking a more flexible option when it comes to saving. It can also be a worthwhile venture if you plan to maximise your interest rates, while also keeping your funds tax protected. 

As always, when it comes to opening any kind of financial account, you should shop around to find the most competitive interest rates to maximize your money potential. You may not always find these rates with a flexible ISA, so it’s worth doing your research to find a balance of high rates and attractive terms and conditions.

What are the alternatives to a flexible ISA?

If you’re serious about saving and prefer not to have access to your money for a fixed amount of time, you may find the fixed rate bond a better alternative option. With a fixed rate bond, your money is locked away for a set period, but also stays fixed at the initial agreed upon rate of interest. 

Another good alternative to the flexible ISA could be a notice account, where you can withdraw your money after giving a set amount of notice. There is also the option to keep things smooth and simple with an easy access savings account, where you can add and withdraw your funds at any time. 

You can easily compare these alternative savings accounts at Raisin UK, to find the best rates for you.

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