Why can't this be done?

NH2004

A colleague who has £10000 in an old low interest paying instant access ISA with Santander and hadn't opened or funded any ISA for 2010/2011 was planning to do the following:

1. Withdraw the £10000 from the existing ISA into his current account and close the old ISA.

2. Open a new Loyalty Flexible ISA paying 3.5% (that doesn't allow transfers in from previous ISA's) and immediatley pay in £5100 , thereby using his 2010/2011 allowance and getting the best interest rate return.

3. After April 6th pay the remaining £4900 into the new Loyalty ISA, towards his 2011/2012 ISA allowance.

His logic for doing this was that he won't save anymore money this new tax year, so isn't worried about using all his allowance up, and by doing the above he is able to put all his previous built up ISA savings back into one highest paying instant access ISA literally within a few weeks.

Because he had withdrawn the £10000 previous ISA savings into his current account, it would count as new money into the new Loyalty ISA and therefore be allowed.

He was told however by Santander that this was not allowed as it would trigger an audit.

Two ISA managers from two different branches both said this.

To me, he was doing nothing wrong, as it's his money, and if he decides to withdraw it from an ISA that's his choice.

Subsequently if he then puts it into an ISA at a later date that should fine, as long as he stays within the yearly limits.

So what was wrong in doing what he proposed?

zzzLazyDaisy

NH2004 wrote: »

A colleague who has £10000 in an old low interest paying instant access ISA with Santander and hadn't opened or funded any ISA for 2010/2011 was planning to do the following:

1. Withdraw the £10000 from the existing ISA into his current account and close the old ISA.

So what was wrong in doing what he proposed?

Nothing.

It is his money, he can do what he likes with it.

If it is on a fixed term rate there may be penalties for withdrawing, but if it is simply an old isa languishing on a low interest rate, there is nothing to stop him doing this.

I think I'd be inclined to look for a different provider that accepts transfers in and give my money to an institution that has respect for its customers.

Halifax has an isa 4 paying 3% (3.2% if you have a reward current account) it accepts transfers in, and has instant access so when rates start to rise, the money can be moved if Halifax rates don't keep up.

pressuredrop_2

I guess Santander only want new money.

Easy enough to transfer the money to a new provider, so no big deal.

blueberrypie

As others have said, there's no reason why he shouldn't do what he suggests.

I would suggest that perhaps, given what he's experienced of Santander so far, he might feel that it is worth going elsewhere - e.g. Barclays, which is offering 3.25% - the difference in interest over a year is £25, which many of us feel is a small price to pay for avoiding Santander.

Alternatively, with a Halifax Reward Current Account he could achieve 3.2% on an ISA that does allow transfers in, and add the £5 reward payment each month to the ISA - it would mean spending two minutes once a month transferring money into and out of the Reward Current Account, but he would effectively be £30 better off after a year (even taking into account the lower interest rate).

david78

Nothing wrong with his plan apart from his intentions to use Santander. I don't think the difference in interest they are offering is worth the future grief to be honest. Much better to just transfer it to halifax and take advantage of their "interest from date of application" guarantee. This way you wil earn extra interest if Santander take a long time with the transfer.

NH2004

Thanks all for the replies.

In the end he opened a Nationwide ISA at 3.1%.

In fact the Santander branch ISA manager advised him to do this as the best option available to him!

He said that his branch alone was going to lose £150 Million in savings because of people transferring money out and Santander not allowing them to get a better rate.

Amazing!

ses6jwg

NH2004 wrote: »

Thanks all for the replies.

In the end he opened a Nationwide ISA at 3.1%.

In fact the Santander branch ISA manager advised him to do this as the best option available to him!

He said that his branch alone was going to lose £150 Million in savings because of people transferring money out and Santander not allowing them to get a better rate.

Amazing!

That branch manager obviously doesn't want his bonus in Q2 then.

I expect his Regional Manager will be pleased.

[Deleted User]

NH2004 wrote: »

A colleague who has £10000 in an old low interest paying instant access ISA with Santander ......................................
............................................

So what was wrong in doing what he proposed?

His basic mistake was saving with Santander. I was attracted by their slightly higher interest rates but had to close my accounts in order to access my money because they were so unhelpful.

bigfreddiel

NH2004 wrote: »

A colleague who has £10000 in an old low interest paying instant access ISA with Santander and hadn't opened or funded any ISA for 2010/2011 was planning to do the following:

1. Withdraw the £10000 from the existing ISA into his current account and close the old ISA.

So what was wrong in doing what he proposed?

I'll tell you whats wrong with thw above - never ever WITHDRAW money froman ISA - TRANSFER IT - your mate has just lost 10k of money that could earn interest tax free,

I'm saving myself about £1000 a year now which would have gone to the tax man by never withdrawing from my ISA's aver the last few years.

fj

7sefton

NH2004 wrote: »

Thanks all for the replies.

In the end he opened a Nationwide ISA at 3.1%.

In fact the Santander branch ISA manager advised him to do this as the best option available to him!

He said that his branch alone was going to lose £150 Million in savings because of people transferring money out and Santander not allowing them to get a better rate.

Amazing!

How is the Nationwide ISA the best option available to him? As others have mentioned, Barclays pay 3.25% and the AA even more if you're willing to use online banking.

Funkyfreddy

bigfreddiel wrote: »

I'll tell you whats wrong with thw above - never ever WITHDRAW money froman ISA - TRANSFER IT - your mate has just lost 10k of money that could earn interest tax free,
...

Indeed Transfers would normally be the suggested/reccomended route however you need re-read the original post - which at the time it was posted we were still in the 2010/11 tax year (albeit only hours left).

FF