ISA Query

Keela_2

On the money tips latest newsletter Martin on one hand says that you can take money out of an ISA at any time - he mentions there is a misconception that you can't do this when infact it's ok. So for example if you have 2K in an ISA and need to withdraw 1K, the interest you have already made on the 1K you have withdrawn is not lost and the remaining 1k continues to make interest. HOWEVER, almost next to this he states that under no circumstances must you remove money from an ISA. So now as you can see I am not clear.

I think the correct rule is: you don't remove money from an ISA within the term you are given otherwise you will loose all the interest made on that ISA. However you can transfer within a term without loosing the interest made as long as the transfer is done correctly from bank to bank.

Can someone let me know if this is correct! Thanks ever so much.

Sparky47

Whether you can withdraw money from an ISA depends on the terms of the account.
If it is instant access then money can be withdrawn any time and interest will be paid up until the day of withdrawal.
If it is a fixed term account, then assuming withdrawals are allowed there will usually be a penalty in terms of lost interest.

The point Martin is making is that you can pay up to a maximum of £5100 into your cash ISA in any one tax year. If you withdraw money from the account it cannot be replaced.

If you want to move your ISA to one paying better interest, then you need to transfer it rather than moving it yourself.

Keela_2

Hi Sparky, thanks ever so much for getting back to me. I always take out fixed ISAs so based on what you are saying that then means I can not withdraw money without being penalised which is in line with what I thought.

Also if I have a fixed one year ISA can I transfer it to a better one without loosing interest or being penalised before the year is out - I think the answer is yes. I have always waited until the end of the year so it's good to know that I don't nec have to!

Newly_retired

At the end of the fixed term ( year or more) you can transfer your ISA to another. If you do so earlier you will almost certainly lose interest, unless you have a variable rate instant access ISa which you can transfer at any time.

Eco_Miser

Keela wrote: »

On the money tips latest newsletter Martin on one hand says that you can take money out of an ISA at any time - he mentions there is a misconception that you can't do this when infact it's ok. So for example if you have 2K in an ISA and need to withdraw 1K, the interest you have already made on the 1K you have withdrawn is not lost and the remaining 1k continues to make interest.

That's the ISA rules from HMRC.

Keela wrote: »

HOWEVER, almost next to this he states that under no circumstances must you remove money from an ISA. So now as you can see I am not clear.

That's Martin's rules - never ever withdraw money from an ISA - unless you need to spend it, and you haven't an alternative. This is to preserve the ongoing tax-free status. Withdrawing money from an ISA loses all future tax savings on that money. Transferring the money according to the ISA rules is fine.

Keela wrote: »

I think the correct rule is: you don't remove money from an ISA within the term you are given otherwise you will loose all the interest made on that ISA. However you can transfer within a term without loosing the interest made as long as the transfer is done correctly from bank to bank.

No. If you have a fixed term deposit within an ISA wrapper, you lose interest (generally 180 days, but it varies) which may or may not cancel out the interest earned so far. A transfer counts as a withdrawal from the fixed term deposit (so losing interest), but not from the ISA wrapper.

Keela wrote: »

Can someone let me know if this is correct! Thanks ever so much.

No, you are confusing three different thisngs: HMRC's ISA rules, which say you can get your money anytime; the deposit taker's rules, which may specify a penalty for early withdrawal (or may not, depending on the access arangements of the account); and Martin's rules for sensible use of an ISA - never remove the wrapper except to eat the cake.

Sparky47

Keela wrote: »

Also if I have a fixed one year ISA can I transfer it to a better one without loosing interest or being penalised before the year is out - I think the answer is yes. I have always waited until the end of the year so it's good to know that I don't nec have to!

As Eco Miser has said, The answer is NO. If it is a one year fixed term then as far as the provider is concerned a transfer is the same as a withdrawal in terms of the interest penalty. You need to wait until the one year term is up, then transfer if you find an account paying better interest.

Keela_2

You have all been great - never expected such comprensive & quick responses. Thanks again