would appreciate some clarification regarding cash ISA's

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
5 replies 881 views
DanielClarkDanielClark Forumite
34 Posts
edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
ok, first off, I know there are lots of threads on the subject, but I could spend all day looking through them, but I don't have all day, so I'm going to post a thread on the matter myself and hope someone can fill me in on the intricacies of how they work.

first off, let me explain that I only opened a bank account the other week, so it's all kind of new to me. I've read all the leaflets that I was given, and after reading them, I have gained a little insight. I would appreciate a little bit of advice regarding the finer details though

as it is, I have a current account where my wages, spare change etc are deposited, with a cash ISA running alongside it. when I opened them, I made an initial deposit of £1000, with half going in the current account, and half in the cash ISA.

I understand that at any time, I can transfer money from my current account to the cash ISA, and vice versa, but if I transfer from the ISA to the current account, it reduces the overall amount I can save in a single tax year by that amount (eg, if I take £1000 out, I can only save up to £4340 (is this correct?))

what should happen if I reach the threshold of £5340 before the end of the tax year? can I then open a second ISA account and deposit there?

moreso, that would mean that in the second tax year, I would have 2 cash ISA accounts that I can save into (on top of what I saved in the first year) , thus doubling the amount I can potentially save?

Replies

  • le_louple_loup Forumite
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    You don't need to read all the threads. Look at the top of this page. "Full ISA Guide". It's all there.
  • lisyloolisyloo Forumite
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    eg, if I take £1000 out, I can only save up to £4340 (is this correct?)
    Yes £5340 is the max on contributions not balance.
    what should happen if I reach the threshold of £5340 before the end of the tax year? can I then open a second ISA account and deposit there?
    Nope. The max is £5340, do you can't put any more in till the next tax year in April.
    Your other tax free options are stocks and shares ISA (also £5340) or if can tie the money up for 12 months you coudl go for NSI index linked certificates.
    These are paying RPI+0.25% for the first year. Currently that is 5.25% but you have to bear in mind you'll get future RPI which no-one knows, but it's guaranteed to be safe, tax free and above inflation. You can access it before 12 months but you won't get any interest.
    that would mean that in the second tax year, I would have 2 cash ISA accounts that I can save into
    You can only have 1 MAX per year.
    The second year you can either choose to use your existing ISA or open a new one.
    Personally I like mine all in one place as I don't want to have 10 in 10 years time, so I just transfer about once a year to the top rates.
    thus doubling the amount I can potentially save?
    No sorry. Max 1 ISA, Max £5340.
    There are other tax free options available - notably S&S ISA or NSI.

    It really isn't intricate for cash. It's actually very simple.
  • le_loup wrote: »
    You don't need to read all the threads. Look at the top of this page. "Full ISA Guide". It's all there.

    I didn't see that link, sorry
    lisyloo wrote: »
    Yes £5340 is the max on contributions not balance.

    Nope. The max is £5340, do you can't put any more in till the next tax year in April.
    Your other tax free options are stocks and shares ISA (also £5340) or if can tie the money up for 12 months you coudl go for NSI index linked certificates.
    These are paying RPI+0.25% for the first year. Currently that is 5.25% but you have to bear in mind you'll get future RPI which no-one knows, but it's guaranteed to be safe, tax free and above inflation. You can access it before 12 months but you won't get any interest.

    You can only have 1 MAX per year.
    The second year you can either choose to use your existing ISA or open a new one.
    Personally I like mine all in one place as I don't want to have 10 in 10 years time, so I just transfer about once a year to the top rates.

    No sorry. Max 1 ISA, Max £5340.
    There are other tax free options available - notably S&S ISA or NSI.

    It really isn't intricate for cash. It's actually very simple.

    so if I open a second one in the second year, the first one will be locked and I won't be able to deposit into it?
  • lisyloolisyloo Forumite
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    so if I open a second one in the second year, the first one will be locked and I won't be able to deposit into it?

    Correct.
    You can only contribute to one in each tax year.

    You have 3 options really.

    1) You can contribute to the existing one in the new tax year. The problem with this is that typically variable rates drop after the first year.
    2) You can open a new one and leave the old one where it is. Again the old one may be getting poor interest particualrly if it's variable.
    3) You can transfer the old one to a better paying account and then contribute on top with your new allowance. This works well because you have all your money in one place and get a good rate on ALL of it. you MUST go through the transfer process to keep your old money in the ISA wrapper. You can NOT withdraw and deposit, if you want to keep the old allowance.

    If you are going with variable rates, I'd suggest option 3.
    If you are going with fixed rates you probably want option 2.
  • jenniferniljennifernil Forumite
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    You can also transfer your old one to a new provider AND open a new ISA with a different provider.

    Sometimes the best interest rates are only available for new money, these accounts will not accept transfers in of previous years. In that case you find the best one for your new money, and the best one that accepts transfers.
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