Closing ISA before April, re-open a fresh one

Supanova7G

I have a quick question.

It is my understanding you are only allowed to open 1 cash ISA per financial year.

I have also noticed from the 'Top Cash ISAs' article that many of the ISAs I would prefer to use will not allow transfers from existing ISAs.

Given the above, is it possible for me to open a cash ISA now (for example, the Santander, 3.3% AER) and use it until the end of this financial year, when I will simply close the ISA account (early?) and move the funds to a current account. Could I then open a fresh ISA at the start of the new financial year and thus get one of the 'New ISA Money Only' ISAs?

I know it sounds very silly and rather pointless, but there is a method in my madness that I won't bore you with. I'm 22, just embarking on my earning life and looking for a pitfall in the above plan that I don't know about.

Many thanks.

Ark_Welder

1 cash ISA per tax-year. No need to close an account opened this year, come 6th April next year you can open another. Don't close an ISA and move the funds to your current account because you will lose the continuing benefit of its tax-free status. If you open a new ISA with those funds then they count toward the contribution limit for the new year. So closing and reopening means that the total of your cash ISAs will only ever be a maximum of the contribution limit for the particular year (e.g. £5340 assuming no rises in the limit), whereas by keeping the existing ISA invested you can contribute to a new ISA each year (or add to the existing one, if allowed). So after two years you could have up to two lots of £5340 invested, i.e. £10680 (again, assumes no rises in the limit).

Supanova7G

I see, thanks for your reply Welder. The reason for discarding this years ISA account is that I know I will need to withdraw the entire contents of it around April time anyway.

I didn't actually realise you could open multiple ISA accounts, one for each tax year. So I could, for example, clear out my Santander account and come April 6th open a Halifax one and provided I don't contribute to the Santander one (which I can't because you can only contribute to one cash ISA per tax year) then everything is fine? Is that right?

Ark_Welder

Yes - that should be fine.

DragonQ

Supanova7G wrote: »

I see, thanks for your reply Welder. The reason for discarding this years ISA account is that I know I will need to withdraw the entire contents of it around April time anyway.

I didn't actually realise you could open multiple ISA accounts, one for each tax year. So I could, for example, clear out my Santander account and come April 6th open a Halifax one and provided I don't contribute to the Santander one (which I can't because you can only contribute to one cash ISA per tax year) then everything is fine? Is that right?

Remember that once you take money out of an ISA you've lost all tax-free benefits for that money. If you don't actually need the money come the 6th of April, you should just transfer the money in your Santander ISA into the new Halifax one using an official ISA transfer form. That way it'll stay in its nice tax-free wrapper, along with any new money you want to deposit in the 2012-2013 tax year.

Also remember that the rule is that you can only deposit new money into one ISA per tax year - there is no restriction on the actual number of ISAs you can have open simultaneously. So, to get the best return for your money you can have two ISAs per year - one with your current year's contributions and one with all of your previous years' contributions (funded by an official ISA transfer).

xrjtg

If you have much less than the annual allowance in your account then you might as well do as you describe, as the accounts that don't accept transfers in do tend to be the best payers. If you would be using all of next year's allowance anyway, then it's best if possible to do a proper transfer: just fill in a form obtained from the new provider who offers the best rates on transfers in.

westendguy

I am in a similar situation, having a 2 year cash ISA with Birmingham Midshires which matures in January, plus a 1 year First Save bond which matures next June.

My plan is to cash in the ISA next March, and then combine it with the sum from the one year bond as part of next years ISA allowance, as the total will be within the limit.

t0rt0ise

Unless you actually need to spend the money, it is never a good idea to cash in an ISA. Just leave it be. Move the money in the old ISAs to get a better rate if you like but not by closing them, just transfer them. You can then open a new one for any new savings in the current year. If you don't have any new savings then the old ISAs are just fine left alone.

xrjtg

t0rt0ise wrote: »

Unless you actually need to spend the money, it is never a good idea to cash in an ISA. Just leave it be. Move the money in the old ISAs to get a better rate if you like but not by closing them, just transfer them. You can then open a new one for any new savings in the current year. If you don't have any new savings then the old ISAs are just fine left alone.

No, if you can get a higher rate of interest on the accounts that only accept new money, and you only have a couple of thousands of pounds with no prospect of being able to save more over the next year, withdrawing and re-depositing is an entirely sensible things to do.