Why Transfer?

franzthestampede

Oh, thank you so much. Continuing:

A ) I just want a high interest and I guess I'm happy to leave that money there untouched for at least one year? I'm not too fussy, I just really want to get some decent interest again and soon. Who is my provider?

B ) OK, that's what I thought, phewww

C ) OK, but during the last tax year I hadn't saved up enough money to fill up completely a new ISA allowance. I guess I should still be able to transfer all the remaining 5900 of the HSBC bad ISA into a new ISA that accepts past years' allowances?

Thanks again for all your help! x

Skerry

Thanks for all the replies. It looks like the only thing against closing and opening rather than transferring ISA accounts is that the money counts against that years allowance which I thought anyway and that once I open an account that will be my one ISA that I can contribute towards that year. Martins comment that I'll immediately lose all my tax benefits if I was to close an ISA made me think there was more to it than simply affecting how much I could contribute during the year. I suppose it all depends on how you read it but it sounded worse that it really is. Cheers for now.

Baldur

Skerry wrote: »

Martins comment that I'll immediately lose all my tax benefits if I was to close an ISA made me think there was more to it than simply affecting how much I could contribute during the year.

There is more to it, if you had opened a new Cash ISA with the maximum allowance each tax year since the scheme started in 1999, you could now have £34,200 plus the accumulated interest on that capital earning tax-free interest at the moment.

Cash ISAs are best regarded as long-term savings vehicles.

itsbruce

"Old" ISAs do continue to generate interest on the capital invested in them, so the motivation to transfer is presumably that your new ISA has a better rate and you want that rate applied to all your ISA savings, not just what you put in this year.

Jonbvn

Baldur wrote: »

There is more to it, if you had opened a new Cash ISA with the maximum allowance each tax year since the scheme started in 1999, you could now have £34,200 plus the accumulated interest on that capital earning tax-free interest at the moment.

The other thing to consider is that from next April you can put £5,100 into a cash ISA. This means that over a few years the amount accumulated can become quite substantial, with significant tax-free interest.

Skerry

Thanks for the replies though I get the impression that maybe my initial question wasn't worded to well. I was more concerned about the "losing tax benefits" if I closed rather than transferred. I'm not going to contribute to an ISA this tax year as I feel that the rates are too low and I would rather pay any surplus monies into my mortage and make inroads into that. I do have an ISA that hasn't been paid into for a few years hence the transfer or close. Say my £1000 is making 1% interest at present, the best transfer in ISA makes 2% but opening a new ISA makes 3% interest. Is there anything wrong with just closing the old ISA and opening a new ISA? Reading the replies it shouldn't affect any tax benefits as far as I can see. Never mind how much I could or could not have saved if I had contributed in previous years but just using this one example is there anything wrong with my thinking? Thanks again and apologies if I'm labouring the point. Cheers

itsbruce

Skerry wrote: »

I was more concerned about the "losing tax benefits" if I closed rather than transferred.

If you close an ISA, you lose the tax benefit. Money in an ISA earns you tax-free interest as long as you keep it in the ISA. If you just close an ISA, then you free the cash but lose the benefit. On the other hand, if you transfer the cash into a new ISA, you get to keep the tax-free shield on all of that cash and you still get to put new money into the new ISA this year, up to £3600, if you want to.

I do have an ISA that hasn't been paid into for a few years hence the transfer or close. Say my £1000 is making 1% interest at present, the best transfer in ISA makes 2% but opening a new ISA makes 3% interest. Is there anything wrong with just closing the old ISA and opening a new ISA? Reading the replies it shouldn't affect any tax benefits as far as I can see.

If you really only have £1000 in your old ISA, then it doesn't really make any difference as long as you are absolutely sure you don't want to add more money to your ISA this tax year (because you'll have reduced the amount of new money you can put into the ISA from £3600 to £2600). If the new ISA won't let you transfer but pays better interest, then you have an incentive to close your old ISA and just pay the £1000 into the new ISA. But if the new ISA does let you transfer, why not transfer and keep your options open?

If you have more then £3600 in your old ISA, transferring would be the only option if you wanted to keep it all tax-exempt. In the long run, the tax-exemption (and the growing pot of money shielded behind it) is much more valuable than the interest rates on offer in any single year.