Worth opening new ISAs now, and is it possible? 31 March 2011 at 2:12PM edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings 4 replies 672 views

Leaseholder49

I've got around 12k in a First Direct ISA (including all of this year's allowance), paying 2.7% until November. Obviously there are now better rates out there (for a very limited time I know!), so I am wondering if I can do the following to take advantage of current rates:

- Open the Santander 3.3% ISA for new money (but leave it empty til next tax year). Can I do this in the current tax year when I've already subscribed to a different ISA? If I open it but don't pay in, could I open yet another one next tax year if a better rate appears?
- Open the Halifax 3.0% ISA to transfer the old ISA into.

Any reason why I couldn't (or shouldn't) do the above? I was thinking that rates will go down again in the new tax year, but maybe I'd be better to wait and see.

Thanks!

blueberrypie

Leaseholder49 wrote: »

- Open the Santander 3.3% ISA for new money (but leave it empty til next tax year). Can I do this in the current tax year when I've already subscribed to a different ISA? If I open it but don't pay in, could I open yet another one next tax year if a better rate appears?
- Open the Halifax 3.0% ISA to transfer the old ISA into.

Yes, you can do both of the above. People have reported varying experiences when trying to open the Santander one without funding it, but if they'll let you, it's certainly within the rules for ISAs.

If you don't ever fund it, it won't ever "count", so yes, you could open another after April 6th.

dtsazza

1) You certainly can open a Santander ISA now, with the intention of paying into it on or after 6 April. The application process appears to get you to confirm you haven't paid into any other ISA accounts this year (which you have); but others have confirmed that this isn't an actual problem w.r.t. opening the ISA, merely funding it. You get a reasonable period (a month, IIRC) between the opening date and the point at which it must be funded, and others have reported no problems with opening one now and paying in money on the 6th.

ISA regulations let you open as many accounts as you like, providing all your contributions for the same year stay together. So from that perspective you could certainly open the Santander account, and then when(/if) a 3.6% ISA comes on the market on April 6 just open and fund one of those instead. I don't know what your liability would be to Santander in this case, whether your T&C with them would cause you any grief. I suspect not (do "cooling-off" periods apply to ISAs?), though I can't say for sure either way.

2) You can always transfer ISAs at any time. (If you've used part of this year's contributions limit, you can even transfer the current year's contributions and then contribute to the new account, up to the total limit).

So you can do either of the above. Transferring into Halifax has no downsides that I can think of, because you could transfer out at any point (even in a few weeks) if a better transfer-accepting offer came on the market. The potential downside to contributing to a Santander ISA on the 6th is that you won't be able to use any other new-money-only ISAs next year. So if the 3.6% ISA from before appeared after you'd paid some money into Santander, you wouldn't be able to take it up on its offer.

Still, I consider the latter problem unlikely to occur. The majority of new ISA accounts are launched in March, so the odds of a better one appearing are not great. And besides, the only way around this is to not pay the money into any ISA until the new account appears, meaning that you'll be getting a lower return for the (possibly unending) period while you're waiting for a better account to appear.

Thus going ahead with both of these options would appear to be both possible and a good idea, in my opinion.

Leaseholder49

Thanks for the replies. One more (dummie question) - what does the 'variable' element of the Halifax '3% AER variable' rate mean? Can they just change it at any time, so it could be 0.5% next week?

blueberrypie

Yes, they could change it at any time. It's not likely to drop during the first year though - and even if it did, you can transfer out to a better-paying ISA at any time.