Which cash ISA?

B_Real_2

Hello

I have £3k sitting in an old ISA that I need to transfer to a new one. Main options are:

Santander 3.3%, tracks base rate but doesn't allow transfers in; or
HBOS 3%, does not track base rate but allows transfers in.

Is it better to transfer my old ISA to the HBOS, but risk swamping by a potential rise in base rate, or withdraw the £3k from old ISA, and start a new one with Santander which will protect against any rate rise (but then using up £3k of my £5.4k odd allowance for the year).

I'm not likely to be investing more than (£5.4 - £3k) £2.4k in ISA's in this financial year.

Anything else I should be considering?

Cheers
Brad

Lokolo

If you definitely cannot afford to save more than £2.4k in the next year then you may as well withdraw the money and put in the Santander one.

However, if there is a chance, you should transfer your exisiting ISA to HBOS, then open up a Santander one, and use that one this tax year.

If you end up saving more than £2.4k then you have gained e.g. if you manager to save £4k, you will have £4k in Santander, £3k in HBOS meaning you will have £7k + interest in ISAs.

B_Real_2

Lokolo wrote: »

However, if there is a chance, you should transfer your exisiting ISA to HBOS, then open up a Santander one, and use that one this tax year.

I can have more than one ISA?

Lokolo

B_Real wrote: »

I can have more than one ISA?

Yes. You can only contribute (so put new money in) to one ISA each tax year.

So I have 3; One with Halifax from last year, One with Aldermore which is a few years old, and one with Barclays which is this years. I can only put money into the Barclays one as that is my one cash ISA this year.

B_Real_2

So if I transfer my old ISA to Halifax tomorrow, it will earn 3% for the remainder of the financial year. Then I open up a new Santander one with say £100, and I can start contributing to that over the course of the year.

What's to stop me putting new money into the Halifax one after I open the Santander one?

Lokolo

B_Real wrote: »

So if I transfer my old ISA to Halifax tomorrow, it will earn 3% for the remainder of the financial year. Then I open up a new Santander one with say £100, and I can start contributing to that over the course of the year.

What's to stop me putting new money into the Halifax one after I open the Santander one?

The rules. HMRC get information from the banks about how much you have contributed, so obviously they will see ERROR ERROR person X has contribute £10,000 over 2 ISAs, arrest him!!!!!111!!

(they won't actually arrest you but you will get told off)

But yes, you can do what you've said. Halifax have instructions on how to transfer on their website:

http://www.halifax.co.uk/savings/accounts/cash-isas/transfer-your-isa/

lisyloo

What's to stop me putting new money into the Halifax one after I open the Santander one?

You would be breaking the rules on only having one (active) ISA.
If the Inland Revenue pick up on it then it would probably be a slap on the wrist.
But if you were very unlucky it could trigger an Inland Revenue investigation into all your tax affairs.
That would involve a great deal of effort on your part providing paperwork and answering question.
If you have done something wrong, it could be a prosecution.

Probably a slap on the wrist though

macman

One important point: don't withdraw the money from your old ISA and then transfer it into the new one. If you do that, the tax free status of that sum is permanently lost. You must transfer it directly from one to the other, using an ISA transfer form from the new provider.

B_Real_2

macman wrote: »

One important point: don't withdraw the money from your old ISA and then transfer it into the new one. If you do that, the tax free status of that sum is permanently lost. You must transfer it directly from one to the other, using an ISA transfer form from the new provider.

Don't really understand this. If I withdraw £3k and put it into my current account, I'm not going to pay tax on this. If I then put it into the Santander ISA, i'm still not going to pay tax on it and the earnings on it then become tax free as its in an ISA.

Eco_Miser

B_Real wrote: »

Don't really understand this. If I withdraw £3k and put it into my current account, I'm not going to pay tax on this.

In practice, possibly not, in theory you could, any interest earned is not tax-free, and it is currently possible to earn 5% gross interest on a current account.

B_Real wrote: »

If I then put it into the Santander ISA, i'm still not going to pay tax on it and the earnings on it then become tax free as its in an ISA.

You are allowed to put a limited amount into a cash ISA (currently £5340) each year. Once in, that money earns tax-free interest until you take it out, or some future government decides to discourage saving. Over the years you can build up many tens of thousands of pounds earning tax-free income. If you take the money out of the ISA, even for a minute, you lose this possibility. This is why there is a special procedure for transfering ISAs, so the money is always in an ISA.
Of course, if you're going to spend the money soon, the loss of tax-free status doesn't matter much.

macman

I'm talking about transfers of old ISA's, not topping up a new one.
You will most certainly pay tax on it once it's transferred into your current account, any interest earned on that account is taxable. Once it's withdrawn from the old provider, you can't put it back into a transfer ISA, only into a new one, thereby using part of this year's cash limit.