Thank you to the 41 people who have written to me to say that they wished their platforms offered flexible individual savings accounts (Isas) following my column last month ('Time for all platforms to offer flexible Isas', IC, 25 June 2021).
Flexible Isas enable you to withdraw and replace money in the same tax year without affecting your annual allowance. For example, say you had an Isa worth £100,000. You could withdraw half of it early on in the tax year and pay back in as much as you withdrew before the tax year ends – as well as that tax year’s Isa allowance. If your Isa is not flexible, you can only pay in the current tax year’s Isa allowance, irrespective of how much you take out.
Certain life events can make this flexibility attractive. One reader says: “While I appreciate there is risk in selling investments and being out of the market, I am likely to need a few tens of thousands to complete some building works on a piece of land which I expect to more than recoup (though not guaranteed) three to nine months later.”
Another reader says that they have used a flexible Isa to provide a short-term loan to a family member. And one says that when buying a house, it can be helpful to make an Isa withdrawal to raise the deposit, decrease the loan-to-value and get a lower mortgage rate, knowing that assets can be put back into the Isa until the end of the tax year.
Platforms that do not offer flexible Isas, such as Hargreaves Lansdown, AJ Bell and interactive investor, suggest that there are three main reasons for this. It might undermine long-term investing habits, it would cost more to administer flexible Isas and there is insufficient demand.
The first reason may be a little short-sighted. James Norton, senior investment planner at Vanguard UK, which has offered flexible Isas since 2017, says that if people know the flexibility is there, it may encourage them to invest more and earlier, rather than keeping excess amounts in cash which too many people do.
A reader offered a nice response to the second point: platforms would benefit from elevated dealing fees, might benefit from people investing earlier in the tax year and could charge extra for the service.
Regarding lack of demand, Vanguard says that about 10 per cent of its Isa clients have withdrawn money and put it back in again since its platform was launched in 2017. While this does not necessarily mean that they have put back in more than the annual Isa allowance, it does show some appetite for flexibility. Perhaps, as some readers suggested to me, there is as much a lack of awareness as a lack of demand.
Ultimately, anyone investing in stocks and shares should be thinking in terms of a five-year time horizon or longer. But life happens and for some people a flexible Isa can prove extremely useful – even if you don’t expect it to. Platforms will only offer flexible Isas if they see enough demand, so if it’s something you’re after you should let them know. I have shared all the responses I received anonymously with the platforms.
In response, Danny Cox, head of external relations at Hargreaves Lansdown said “we will look continue to listen to our clients and monitor demand”. Charlie Musson, head of PR at AJ Bell, said “this feedback has been passed to our product development team and we continue to keep the option for a flexible Isa under review.”
Jemma Jackson, head of public relations at interactive investor said "we constantly review our product offering, but there will always be a demand element to it too. Your reader comments were thought provoking, and some we are already acting on". This relates to a reader observation that a flexible Isa would be helpful for investing in placings and IPOs via PrimaryBid where you need cash at short notice. Jackson said interactive investor is working on a solution to keep placings within the Isa wrapper.
In the meantime, Vanguard Personal Investor, Charles Stanley Direct, IG and Barclays Smart Investor all offer flexible stocks-and-shares Isas. If you know of any others please let me know!
