What is a Flexible ISA?

Simon Lyle

What is a flexible ISA? We explain what flexible ISAs are, how they work and what you could use one for, along with some other ISA options to consider.

There’s around £600bn saved in ISAs (Individual Savings Accounts) in the UK. And versatility is one of the qualities that has made them so popular since being introduced more than 20 years ago.
There are lots of ISA options available and what they all have in common is that they offer a tax-efficient way to save or invest. Whether you’re saving for the short term or in it for the long run, there’s likely to be an ISA with the right features to suit most needs. Flexibility was introduced as a new feature in 2016.

What is a flexible ISA?

When an ISA is described as ‘flexible’, this means you’re allowed to withdraw your money and put it back into the same account in the same tax year without affecting the annual allowance you have for ISA savings.

Your ISA allowance is the amount you’re allowed to save into ISAs each year. It’s set at £20,000 this tax year 2020/21, and you can save either the full amount or some of this. And you can also split your allowance across different types of ISAs, provided you meet certain conditions set by the Government.

As an example, say you’ve paid the full £20,000 into your ISA. You then need to withdraw £5,000. A flexible ISA would let you put that £5,000 back into your ISA in the same tax year. An ISA without flexibility won’t.

What sorts of ISAs are flexible?

There are lots of different types of ISAs including Cash ISAs, which let you save in cash and earn interest, and Stocks & Shares ISAs, which allow you to invest your money. Stocks & Shares ISAs give you the potential for growing the value of your money, although they can go down as well as up in value and you could get back less than you paid in. Both Cash and Stocks & Shares ISAs can be flexible, but flexibility isn’t available on all ISAs and not all providers offer it.

There are also certain kinds of ISAs that can’t be flexible. This includes Junior ISAs, Help to Buy ISAs and Lifetime ISAs, which are designed to help you save on behalf of children, or towards a home or retirement. You can find out more about the main types of ISAs available on the ISA page of the Government’s website.

When may you need a flexible ISA?

There are occasions when being able to withdraw money from your ISA and replace it within the same tax year could be helpful. For example, you might have an unexpected short-term cost or need money for something like home repairs or a holiday. Once you’ve covered that expenditure, you may decide to return to saving into your ISA later the same year. With a flexible ISA you could use that part of your allowance again.

Think carefully before withdrawing any money

While some Stocks & Shares ISAs allow you to use the flexibility feature by converting your holdings to cash before withdrawing, these ISAs are generally designed for those aiming to keep their money invested for at least five years or more.

It’s important to remember that when your money is invested the value of what you hold is subject to the ups and downs of the markets. If you were to take money out when markets have fallen, you could potentially be selling your investments at a loss. And if the markets have risen by the time you look to reinvest your money, you wouldn’t be able to buy as much as the price of investments would be higher.

You can read more about how market volatility can affect your investments in our article Why investing could still be right for you.

Consider what else you may need from an ISA

It’s worth remembering that flexibility is just one benefit an ISA can offer and there are plenty of other types of ISAs that could suit your needs better.

Before making any decisions, it’s a good idea to be as clear as you can on what your saving priorities are, do some research and shop around.

While Standard Life’s Stocks & Shares ISA isn’t flexible, it does offer other benefits you may want to consider if you’re thinking to the future and saving for the long term. These include easy access, easy and DIY investment options, and the ability to switch the funds you’re invested in easily.

Find out more about ISAs and the Standard Life ISA today.

The value of your investments can go down as well as up and may be worth less than you paid in.

Laws and tax rules may change in the future. The information here is based on our understanding in September 2020. Your own circumstances also have an impact on tax treatment.

This information isn't intended as financial advice. If unsure, you should speak to a financial adviser and there is likely to be a cost for this.