Flexible ISAs vs a normal stocks and shares ISA

A flexible stocks & shares ISA is a type of individual savings account that lets you take money out then put it back again without lowering your overall yearly allowance.

This applies as long as the money is moved and replaced in the same tax year, which in the UK always starts on 6th April and ends on 5 April the following year.

What are flexible stocks & shares ISAs

Flexible Isas were introduced in April 2016. They were designed to give ISA savers more freedom about how they use their allowance.

For example, for the current 2022-2023 tax year the ISA allowance is £20,000.

Say you put in £15,000 during the tax year. You then take out £5,000.

If your ISA is flexible the amount you can now put in during the same tax year is £10,000 (the remaining allowance of £5,000 plus the £5,000 you took out).

Any money you take out of a flexible ISA must go back into the same ISA.

However you can move money between the three types of flexible ISA; flexible cash ISA, flexible stocks and shares ISA and flexible innovative finance ISA.

Your provider can tell you if your ISA is flexible.

Like all ISAs, money inside a flexible ISA grows free of any taxes.

• Related guide – best ISA offers for switching provider

How do flexible ISAs differ from non-flexible ISAs?

Flexible ISAs give you more choice in how you use your annual ISA allowance than non-flexible ISAs.

With a non-flexible ISA, if you take money out during the tax year you will lose that amount from your allowance.

For example, your allowance is £20,000 and you put £15,000 into an ISA during the 2022 to 2023 tax year.

You then take out £5,000.

With a non-flexible ISA the amount you can now put in during the same tax year is £5,000, just the remaining allowance.

With a standard Stocks & Shares ISA, some people may choose not to invest, fearing their money will be locked away.

On the other hand, investors who don’t have a flexible account may resist redeeming their money – even if they need it – so as not to impact their £20,000 allowance.

Albert Soleiman, head of CMC Invest UK, an investment platform, says there aren’t any negative trade-offs when it comes to selecting a flexible ISA over a standard ISA.

He says: “Not all providers, however, offer flexible accounts. If you want the benefits of flexibility, therefore, you need to make sure this is an option with your chosen provider.

“If you already have an ISA and it’s not flexible, you may want to consider transferring to a new provider in order to take advantage of flexibility.”

What you can invest in a flexible ISA?

Flexible ISAs are available as cash, stocks & shares and innovative finance ISAs.

Flexible stocks & shares ISAs can invest in any of the investments a normal stocks and shares ISA can invest in. This can include bonds, individual company shares, and investment funds.

Flexible innovative finance ISAs have a broader range of investments you can invest in, based around peer-to-peer lending and crowdfunding. These investments can be riskier.

Flexible cash ISAs only allow you to put your money into cash savings products.

What is the best way to use a flexible ISA as part of your investing plan?

Using a flexible stocks & shares ISA to invest in a variety of assets for the long-term makes sense for many investors.

This may be investing for a house or car or building a fund for later in life.

Albert Soleiman, head of CMC Invest UK, says during times like the present, when inflation and interest rates are high, having long-term goals can help you make the right decisions.

He says: “Focusing on your long term goals can help you make the best use of your flexible stocks & shares ISA without making a hasty decision based on market turbulence.

“If, however, you have a sudden need to withdraw money, knowing you have the freedom to do so without harming your annual ISA allowance offers just that little bit more peace of mind.”

Pros and cons of a flexible ISA

Pros

• A flexible ISA can help provide you access to your cash when you need it most – for a life event such as building expenses for example.
• You can access your cash in the short-term then put it back without derailing your longer term saving plans.
• Like all ISAs, any gains you make in a flexible ISA are free of tax.

Cons

• Flexible ISAs are only available as stocks and shares, cash and innovative finance ISAs. Lifetime ISAs and junior ISAs are not available in flexible options.
• Not all providers offer flexible ISAs so the choice is a bit more limited than for non-flexible ISAs.

Which providers offer flexible ISAs?

Source: Moneysavingexpert, Investors Chronicle, ISA providers’ websites