MSE News: Top cash Isa deal launched by Alliance & Leicester

lizzyshep

I'm thinking about opening this up. I don't know much about ISAs though - I currently have one with First Direct that has £2000 transferred in from the previous year - I haven't put any money into it this financial year though.

For those who know more about ISAs, is this a good deal? And should I open it now, or wait and see if a better one comes along? When is the time that all the providers start offering their deals?

Thanks

Baldur

lizzyshep wrote: »

When is the time that all the providers start offering their deals?

Now, by the look of this offering - the 12 month guarantee of 3% above BoE base rate, with a minimum of 3% is very attractive in comparison with most easy access Cash ISAs.

rb10

lizzyshep wrote: »

For those who know more about ISAs, is this a good deal?

If you...

* want instant access ;
* want a guaranteed interest rate for a year;
* will make a calendar note to transfer this ISA elsewhere in a year; and
* have read, understood, and are happy with the T&Cs of the account.

... then yes, the A&L/Santander offer does look like a good account at the moment.

lizzyshep wrote: »

And should I open it now, or wait and see if a better one comes along?

That has to be your decision.

I would have thought that if other providers are going to offer more competitive accounts, they would bring them out within the next week or so, but that's just my opinion, and I could easily be wrong.

Having said that, it'd take a lot to beat this account - it's a very high rate if instant access is what you want (its' nearest competitors are Nationwide and First Direct at 2.75%, a long way below A&L/Santander).

lizzyshep

Thank you both, it looks like I will go for this one then.

Jazzking

I've often thought this and maybe it's just me being daft but...

People say if you "withdraw" out of an ISA instead of transferring you lose your tax-free savings.
So, if I've got £7500 in First Direct at the moment and interest is paid tax-free monthly, what's to stop me withdrawing the balance and depositing it as "new money" into this A&L account?

When people say I'll lose my tax-free element, will they tax me on all interest earned retrospectively since I started doing an ISA if I withdraw?

lizzyshep

I was wondering the same thing and have just started a new thread about it. I don't understand what it means either!

Jazzking

OK, I'm just daft....

Of course, you can only pay in £3,600 (£5,100 from April) per tax year so I couldn't withdraw it all and pay it all in in the same year.

I could spread it over this tax year and next tax year however, unless someone thinks otherwise? Or open one for me and one for my wife now

rb10

Jazzking wrote: »

I've often thought this and maybe it's just me being daft but...

People say if you "withdraw" out of an ISA instead of transferring you lose your tax-free savings.
So, if I've got £7500 in First Direct at the moment and interest is paid tax-free monthly, what's to stop me withdrawing the balance and depositing it as "new money" into this A&L account?

When people say I'll lose my tax-free element, will they tax me on all interest earned retrospectively since I started doing an ISA if I withdraw?

If you have paid any money into any cash ISA since 6th April 2009, then you won't be able to open this A&L/Santander ISA until after 6th April 2010. This is because you can only subscribe (i.e. pay into) one cash ISA per tax year.

If you have not paid into an ISA since 6th April 2009, then you can now pay into one - but you are limited to the annual allowance, which is currently £3600 (or £5100 if you are over 50). So you would not be able to pay in all the money that you currently have in First Direct.

*****

Let's now look at a different situation where the disadvantages of withdrawing cash from an ISA are slightly clearer.

Imagine that you had £3000 in an HSBC ISA, and wanted to transfer that to Halifax (they accept ISA transfers in). You have not paid any money into any ISA since 6th April 2009.

You have two options:

1) Close the HSBC ISA, and walk away with a cheque with which you open the Halifax ISA. This is a situation where you lose the tax-free status of the money. All the interest that HSBC paid you will be tax-free, and all the interest that Halifax pay you will be tax-free. However, doing this uses up £3000 of this year's allowance, meaning that you only have £600 remaining.

2) Transfer the ISA, by filling in an ISA Transfer Form from Halifax. Then, the fact that you've transferred £3000 from HSBC to Halifax doesn't count towards your annual allowance, and so you can still pay in £3600 to either your new Halifax ISA, or open another one and pay it in there.

Doing option (1) obviously limits the total balance that you can build up in ISAs, and should be avoided unless:
(i) the balance that you want to transfer is less than your annual allowance; and
(ii) you know for certain that you will not be using this allowance between now and the end of this tax year.


*****

The best solution for you would be to:

(a) Look for an ISA that accepts transfers in. There's a list of the best here. You can transfer your entire First Direct ISA to one of these, and it won't affect your annual allowance at all.

AND

(b) Look for an ISA to pay your 2009/10 allowance into (only if you haven't paid any money into any ISA since 6th April 2009), and your 2010/11 allowance (from 6th April 2010). This could be the same account as in (a) above, or a different one.

The A&L/Santander ISA would be a suitable candidate for both parts of (b) (i.e. both the 2009/10 allowance and, next tax year, the 2010/11 allowance), but you'd need to find somewhere else that would accept your First Direct ISA for part (a).

Jazzking

rb10 - thanks for an excellent and very informative post

lizzyshep

Yes, thank you very much for explaining that. So, I could do the following:

Withdraw the £2000 I have in my First Direct ISA now (I haven't paid any money into it this tax year)
Open up a new A&L ISA that has a higher rate of interest and pay the £2000 in before the 6th April
That will still leave me with the full £3600 allowance for next tax year

Have I got that right?