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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?

What is a flexible ISA and how does it work?

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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 — junior ISAs and lifetime ISAs are not, for example. 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 

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Also, if you decide to transfer all of your ISA to another provider, you won’t be able to repay the funds that you have withdrawn.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.

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What about the best providers and rates?

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

Best easy access flexible cash ISAs 

Company Rate How to open
Coventry Building Society 3% Online
Principality Building Society 2.85% Online
Post Office  2.85% Online
Virgin Money 3% Online or branch

The Coventry ISA limits you to six withdrawals a year, while the top rate for unlimited withdrawals is offered by Principality 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 clearly the level of freedom it provides — allowing you to access money without compromising your tax savings — can be a very good thing.

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. 

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.

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About the author
Elizabeth Antaloczy is the Marketing Director at Unbiased and has over two decades of experience writing and producing impactful content that motivates people to take action.