3 mistakes to avoid when transferring a stocks and shares ISA

Can you transfer stocks and shares ISA to another provider?

The short answer is yes you can transfer stocks and shares ISA as ISAs have been designed to be transferable between ISA providers.

After all, there is competition between providers over ISA administration, management and dealing fees, and investors may have ISA accounts with more than one provider as such consolidating or transferring/switching, between providers is not uncommon.

ISA providers typically have a section of their website dedicated to ISA transfers and in some instances, there may even be special offers to entice you to transfer your ISA from one provider to another.

The process involves informing the ISA provider that you want to switch to, that you would like to transfer your ISA, opening an account there and providing them with the details of where your stocks and shares ISA is currently held, and what’s in it. The new provider will then contact the existing provider, and request the transfer on your behalf.

The cash and securities within your stocks and shares ISA will then be moved over to your new provider, though that could take a few days to process.

In many cases there won’t be a charge for transferring the assets, however, there may be fees to pay if the transfer involves FX transactions, or, if you sell the existing holdings within your stocks and shares ISA, and transfer cash instead, which you might do if you were going to be investing in funds managed by your new provider.

Avoid these mistakes when transferring a stocks and shares ISA

1. Leave yourself plenty of time to make your transfer, moving ISA providers is a common enough occurrence, but as with all clerical admin tasks, ISA transfers can take time to be processed. There are two parties involved in the transfer, who at the end of the day are competitors. So the firm your transferring from, may not prioritise your transaction.
2. Don’t transfer your ISA if you want to invest in a stock or fund, or make adjustments to the portfolio, in a specific time frame. Far better to make the transfer, when your not planning to be trading in the ISA.
3. Don’t just transfer your stocks and shares ISA on a whim, moving providers on its own won’t improve your ISA performance, which is down to the investments you have in your portfolio.

And remember that switching ISA providers won’t change the amount of money you can invest into your stocks and shares ISA, either. That remains fixed at the thresholds set by the UK government, which at the time of writing was £20,000 per annum.

Is it a good idea to move your ISA?

It’s always a good idea to review your financial services providers by taking stock of charges and services, or if you prefer what you are getting for your money, with a regular review every 12 or 24 months, for example.

Indeed that’s one of the reasons that the Good Money Guide exists.

If you find a comparable service offered by another provider at a lower cost, then it may well be worth moving your stocks and shares ISA.

Lower fees can help long-term investment performance, thanks to what’s known as compounding.
The less you pay away in fees, the more of your money stays in the pot to grow over time.

So for those who pursue a long-term, buy-and-hold strategy it makes sense to keep costs to a minimum.

However, there would be little point in moving your stocks and shares ISA, to a new provider who offers lower dealing commissions but higher admin fees, if you are the kind of investor who trades just a few times a year.

Think about the whole package, what’s right for you, your investment/trading style and your long-term investment goals.

Are there any penalties?

No, there are not usually any penalties associated with a stocks and shares ISA transfer unless you have money invested in a fixed-term deposit or similar, in which case you could incur a penalty for early redemption.

Or if you are invested in in-house funds managed by your current provider, you may have to sell these funds to transfer to another ISA provider. The same could be true of any fractional shares that you hold in your ISA. It’s always worth double-checking what can and can’t be transferred between ISA providers.

What are the costs involved?

If it’s a straightforward transfer of a stocks and shares ISA between two providers then there shouldn’t be any fees you are likely to incur costs. However, if the transfer involves transactions on the account such as converting foreign currency balances or the sale of positions that can’t be transferred to your new provider then it’s likely that there will be dealing charges and or conversion fees to pay. That’s something to consider before you make the transfer between providers but it shouldn’t prevent you from switching if it’s holistically right for you to do so.