Withdrawing from a cash isa

carlrom

Someone I know has got two Cash ISAs with Santander from previous years, one with £9000 and another with £3000, both earning 0.5%! She has decided to use £7000 for a one-off mortgage repayment (@ 4.99%) and then use the remaining (£5000) to deposit in a new Santander Cash ISA (3.3%) opened this tax year, in the knowledge that she won't be able to get the £7000 back in an ISA again. She's not expecting any windfall cash any time soon so I guess that is fine. What I didn't understand is why the person at the till refused to do the operation saying that by withdrawing the £12000 she was losing THIS YEAR's ISA allowance so she wouldn't be able to pay in the £5000 in this year's ISA. Is that correct?

Lokolo

No it's not. The person is getting confused and most probably thinking that the person has paid money in this tax year. So withdrawing it would mean it cannot be replaced.

spikyone

Whilst the Santander employee is wrong, it isn't normally advisable to withdraw from one ISA to put into another.

Your friend has 3 options:
1) If your friend withdraws, then pays the £5k into the Santander ISA, this will count towards the current year's allowance, meaning they can only pay in another £340 from now until April 5th next year. That's only £34 a month.

2) If your friend transfers the £5k instead, although they'll take a slight hit on interest, they'll still be able to pay in £5340 this year.

3) The other option is the middle ground, if your friend genuinely doesn't expect to fill this year's allowance, they could withdraw some money (£5340 minus what they expect to pay in this tax year) and pay it into the Santander account, then transfer the rest into an account that accepts transfers.

I hope that makes some kind of sense

carlrom

Thanks Lokolo and spikyone for the clear answers. She has already opened a new Santander Flexible ISA this year (the one at 3.3%) but has not paid anything in yet. Can she cancel that account and open a Halifax ISA (3%) that accept transfers in? I am clear about the "Only one Cash ISA per year" but at what point is the ISA allowance used, at account opening or at the moment of paying in?

dzug1

The ISA allowance is used when paying in