What is a flexible ISA and how does it work?

Flexible individual savings accounts (ISA) were introduced in 2016, adding a new level of versatility to this type of investment.

A flexible ISA allows you to withdraw money from your ISA and pay it back in, without losing your ISA allowance, provided you do so within the same tax year.

So how do they work, what are the rules, and where should you look to find the best examples?

How do flexible ISAs work?

Under flexible ISA rules, you can take money out of your ISA and pay it back in, without losing interest or incurring charges, as long as you do so in the same tax year.

Not all ISAs are flexible. For example junior ISAs and lifetime ISAs are not. Cash ISAs and stocks & shares ISAs can be flexible, but you’ll find that it varies between providers. 

Essentially, a flexible ISA is designed to prevent you being penalised if you need to access your savings. 

A couple of examples:

• You withdraw £40,000 from a Stocks & Shares ISA in May, but make sure that you pay it back in by the end of the tax year, on 5th April. The flexible ISA rules allow this, so you are free to use your annual ISA allowance and pay in an additional £20,000 if you want to 

• In another scenario, you pay £20,000 into your ISA in April, using all of the current year’s allowance. In November you withdraw £10,000, but under the flexible ISA rules you can repay this by the end of the tax year without incurring any financial or tax penalty 

What are flexible ISA rules?

The key hard and fast rule with a flexible ISA is that you must return the money you withdrew to the same ISA account you took it from. 

Also, if you decide to transfer all of your ISA to another provider, you won’t be able to repay the funds that you have withdrawn. Any payments you make must come from any remaining ISA allowance you may have. 

It’s worth noting that ISA tax rules can change due to new policies being introduced, and the effect of a flexible ISA will vary according to individual circumstances.

Who are the best flexible cash ISA providers?

Here are some of the best providers currently offering flexible ISAs and their rates (as of September 2024). Full details and rules should be accessed from the individual companies. 

Best easy access flexible cash ISAs 

The Trading 212 ISA has an account opening balance of £0 for accessibility to all savers, while the top rate for unlimited withdrawals is offered by Marsden Building Society. 

According to HMRC data, the flexible ISA could be worth an extra £3 billion to UK savers over the next five years, so the freedom it provides, allowing you to access money without compromising your tax savings, can be a good thing.

Get expert financial advice

Flexible ISAs give you the freedom to withdraw money from your individual savings account and pay it back within the same tax year without affecting your yearly ISA balance.

To make absolutely sure a flexible ISA is right for you, it’s worth talking to a financial adviser about your goals and circumstances first. 

Unbiased will match you with an expert financial adviser who can provide guidance on flexible ISAs and help you find the best flexible ISA accounts to meet your needs.

If you found this article useful, you might also find our articles on cash ISAs vs stocks and shares ISAs and how many ISAs you can have informative, too.