Withdrawing Money from ISAs
There are various rules to consider when withdrawing funds from an individual savings account (ISA). Whether you incur a penalty when withdrawing money will depend on the type of ISA. And even if you can do it without a fee, you should consider how it affects your tax-free ISA allowance. We outline the withdrawal rules of an ISA and explain the consequences of taking money out of your account.
Can you take money out of an ISA?
In most circumstances, you can withdraw money from your ISA.
You can take money out of easy access, instant access, and notice ISAs at any time without a fee. You may have to wait for a notice period or withdrawal turnaround times to receive your funds. Your account holder will specify this in your original agreement.
If you have a fixed term ISA, you can still withdraw money before your agreed term ends. However, you will likely be liable for an early withdrawal charge.
One ISA that you cannot usually take money out of is the Lifetime ISA, which you can only withdraw from without incurring any fees if you’re using the funds to buy your first home (up to the value of £450,000), have turned 60, or are terminally ill and have less than 12 months to live. Withdrawals or transfers to another type of ISA outside of this are subject to a 25% charge. For more information visit gov.uk.
At Shawbrook, we offer fixed term and easy access cash ISAs.
It’s important to check the terms of your own ISAs to find out about your right to withdraw money or cash in your ISA at any time.
What happens when you take money out of an ISA?
When you take money out of an ISA, you stop earning tax-free interest on the withdrawn amount. Every tax year, you have an annual ISA allowance, which is currently £20,000. Once you have deposited money within an ISA, it counts towards your annual allowance — even if you withdraw it within the same year (unless you have a flexible ISA). So removing money from an ISA could prevent you from maximising your allowance.
Let's say you deposited £15,000 in a new ISA in one tax year. If you withdrew £10,000, your balance would reduce to £5,000 but you would still have used £15,000 worth of your allowance. So if you were to deposit another £5,000, you would then exhaust the £20,000 deposit limit, despite only having £10,000 saved at the end of the tax year.
When you withdraw money from an ISA, you reduce the tax efficiencies of the annual deposit allowance. Withdrawing money from an ISA doesn’t just affect the interest earned in one year — it can limit your tax-free earnings on this sum for the entire duration of your ISA.
Because of this, it’s worth considering the implications of taking money out of an ISA. If you have another savings account, you may choose to withdraw from this first so that your ISA funds can continue to earn tax-free interest for years to come. If you’re looking to transfer your ISA to another provider, get in contact with your new ISA provider and they will be able to action it on your behalf. Different ISAs will have different withdrawal rules so make sure you check your account’s terms and conditions.
You'll need a flexible cash ISA to withdraw and redeposit money. This works slightly differently and allows you to take money in and out without affecting your annual allowance. You’ll need to ensure any withdrawn deposits are replaced within the same tax year or it will fall outside the ISA tax wrapper. For example if you withdraw on 1st April, it must be put back within 4 days by 5th April (end of the tax year). However, if you make a withdrawal on 7th April, you’ll have almost a full year to put it back.
If you have a fixed term ISA, you'll need to wait until your agreed term is over before you can withdraw your money — unless you pay a fee. If you remove funds earlier, you will be liable for an early exit charge. The cost of this will depend on your ISA provider and your initial agreement.
Do you pay tax when you withdraw from an ISA?
You don’t need to pay tax when withdrawing money from an ISA.
Withdrawals from an ISA do not count as taxable income. Any interest you earn within an ISA will remain tax-free, as long as you have never exceeded your annual deposit allowance.
However, your money does lose its tax-free status once you withdraw it from an ISA. So if you've exhausted your annual ISA allowance, you won't be able to redeposit it in another one. You may need to pay tax on any earnings if you place it in another type of savings account (depending on your other allowances and how much you earn). If you're considering withdrawing from one ISA account to invest in another, you can protect your tax benefits by transferring your ISA instead. Different ISAs will have different withdrawal rules so make sure you check your account’s terms and conditions.
ISA withdrawal charges
You may incur a charge when withdrawing money from certain ISAs.
At Shawbrook, a withdrawal charge may apply depending on what type of cash ISA you hold. Shawbrook currently provides two types of ISAs:
Fixed rate cash ISA
Withdrawals are possible with a fixed rate cash ISA before meeting the term, but this will be subject to an early exit charge.
At Shawbrook, we charge a different early exit charge depending on the length of the original term.
- 1 Year Fixed — subject to a loss of 90 days’ interest
- 2 Year Fixed — subject to a loss of 180 days’ interest
- 3 Year Fixed — subject to a loss of 270 days’ interest
- 5 Year Fixed — subject to a loss of 360 days’ interest
- 7 Year Fixed — subject to a loss of 360 days’ interest
Easy access cash ISA
There is no fee charged when withdrawing funds from a Shawbrook easy access cash ISA. However, the account is subject to a minimum withdrawal amount of £500. Our easy access account has next working day access to your funds if withdrawn before 9:30pm.
Opening a cash ISA with Shawbrook
At Shawbrook, we offer various fixed rate cash ISAs with different term lengths and an easy access cash ISA.
We like to keep our savings simple and straightforward for our customers. We’re proud to say we’ve been awarded Best Cash ISA Provider and Best Variable Cash ISA Provider at the Savings Champion 2023 awards.
If you’re interested in opening an ISA with us, you can find out more about our accounts and the rates available on our cash ISAs page.