This week our reader wants to know when they should move their money out of an ISA.

Reader question:

I have a number of ISAs that I bought through my bank several years ago.

The interest rate I’m getting on them seems ridiculously low now so I think I should move my money to somewhere else.

Can I change where I hold my money or will that use up my current year’s ISA allowance?

Carl Lamb of Smith & Pinching responds:

There are two areas to focus on in my answer: moving your ISAs and what returns you might expect.

Yes, you can move your ISA savings from one provider to another without impacting your current year’s allowance, as long as you do it in the correct way.

What you mustn’t do is withdraw your money from your ISA account and then start a new ISA with the money you’ve withdrawn – that would count as a new investment. You must move the money using a proper ISA transfer: the necessary forms can be sourced from the new ISA provider that you select.

If you want to move your money from an ISA that you have set up in the current financial year, you are required to move all the deposits you’ve made in the year into the new account.

It’s important to bear in mind that some of your ISAs may have been set up with a fixed term so if you move your money before the end of the term, there may be penalties.

As for the potential returns from your savings, Cash ISA interest rates are struggling to keep pace with inflation across the board, so even the most competitive accounts may see the purchasing power of your savings fall over time.

However, they will grow at the expected interest rate (which may be variable, depending on the ISA terms) and won’t fall in actual value. In addition, they are protected under the Financial Services Compensation Scheme for up to £85,000 per financial institution.

It may be appropriate at this point to consider the use of Stocks & Shares ISAs for at least some of your ISA savings.

Stocks & Shares ISAs do carry an element of risk but they also have the potential to out-perform inflation. The risk you take with your ISA investments can be tailored to suit your own attitude to investment risk, and so minimised if you are uncomfortable with risk.

I suggest you have a chat with an independent financial adviser to explore what might be the most suitable mix of ISA savings and investments before you move them, to ensure they are right for you in terms both of investment risk and achieving your objectives.

Any opinions expressed do not constitute advice. The value of your investment can go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.