Should I withdraw cash from ISA to open new one?

looklauren

I have an ISA with a low interest rate and I want to open a regular saving ISA. I don't have enough money to fill both of them, so to make use of the high interest rate of the regular saving ISA, should I withdraw the cash from the low interest one (I can't transfer in by the way) and drip feed it in? What would be the implications?

fullstop

You can not fund two different ISA's the same year, but you can fund you new 09/10 (regular saver) ISA with any new money. If you withdraw money from your old ISA it will loose it's tax free status

grnglide

Without details of how much cash is in the present ISA it is difficult to answer this.

If it is funded at £3.600 and you closed it and then funded a new one (because of the change of tax year) at £300 per month while the balance is in an interest paying account you probably wouldnt lose.

Alternatively transfer it to First Direct or one of the others paying around 3.1 percent. You would need to earn over 4% on the new one (plus the account it was in in the meantime) to make a profit.

Only worthwhile if you cannot put any new money in an ISA this year unless you have less than £3.600 in the present on.

Difference is going to be marginal.

savetilibleed

looklauren wrote: »

I have an ISA with a low interest rate and I want to open a regular saving ISA. I don't have enough money to fill both of them, so to make use of the high interest rate of the regular saving ISA, should I withdraw the cash from the low interest one (I can't transfer in by the way) and drip feed it in? What would be the implications?

Option 1
Transfer your low interest ISA to a higher interest ISA and fund that to the max in one go if you can.

Option 2
Transfer your low interest ISA to a higher interest ISA and open a regular savings ISA and fund that regularly if that is how you need to.

You could have withdrawn last year and opened a better account last year, and pay your money back, but only if it was less than £3600. Otherwise transfer.

looklauren

Thanks for all the help..
I only have about £1600 in the ISA and would only be saving about £50 a month..
What is meant by lose its tax-free status? Does that just mean I've lost that ISA allowance? In which, that wouldn't really affect me, would it?

Baldur

looklauren wrote: »

Thanks for all the help..
I only have about £1600 in the ISA and would only be saving about £50 a month.

In your case, you would not really lose out by withdrawing the £1,600 and depositing the funds straight back into a new Cash ISA.

What is meant by lose its tax-free status?

Your ISA funds earn tax-free interest for as long as they are in the ISA tax 'wrapper', so if you had £3,600 in your 2008/9 Cash ISA, you could add this tax year's £3,600 allowance and have £7,200 earning tax-free interest, and another £3,600 next tax year and so on.

As your situation, as stated above, means that you will only have around £2,200 in your new Cash ISA by April 2010, it doesn't affect you at this stage.