New ISA question

SNIPERCHEETA_2

Hi, have what is probably a silly question.

I set up a cash ISA last May for the first time with a £3,000 windfall (thanks to Martin for persuading me) and added sums over the year to make it £4,532.20 at one point. Following some unfortunate luck I had to withdraw most of it, and it now rests at £10.40.

So what I was planning was to add £807.80 (to put it up to the 2011 limit of £5,340) and then transfer it after 5th April to a new high interest provider given that the interest drops to .5% after a year.

Would welcome any views.

Thanks.

psychic_teabag

Sounds like a good plan. But you don't have to wait until after the 5th to transfer it. If there are accounts available now with a better rate, just start the transfer process going. It will take some time to transfer anyway, and if you wait until the bonus expires, you will spend some time earning the lower rate. And there is risk that the good accounts will be withdrawn to new customers if they reach their targeted take-up.

Be sure to deposit all the money you intend to before the transfer : while the transfer is in progress you won't be able to deposit more, and the the transfer might not complete before the 5th.

SNIPERCHEETA_2

That's great, thanks. Would there be a problem if the transfer was in fact very prompt and took place before 5th April? Ie. would I not be limted to this year's limits?

psychic_teabag

For transfers, the proximity to April the 5th are largely irrelevant. The significance of that date are
1) that's when unused annual allowance expires (but a new allowance is granted)
2) the rule about only paying into a single cash ISA during any one financial year.

The scenario you don't want is that you start the transfer before all your 2011/12 allowance is paid in, but the transfer doesn't complete until after April 5th, so that your 2011/12 allowance vanishes. (During the transfer, the old account probably won't accept deposits, and the new one has not yet become the "active" ISA for the year.)

If the transfer does complete before the 5th, you can pay remaining 2011/12 allowance into the new ISA, which is now the "active" one. But it's safer to pay the remaining 2011/12 allowance before the transfer, so you don't have to worry about it. (An "in-house" transfer between two ISAs by the same bank will probably complete in a day or to.)

Note that it's only a big deal if you expect to fully utilise your 2012/13 allowance (£5640 I think). If you won't be, it doesn't really matter whether you top up the ISA using remaining 2011/12 allowance or fresh 2012/13 allowance.

While the general rule is that you mustn't withdraw funds from an ISA, if you only expect to be adding a total of, say, £4000 to an ISA over the next year, you could quite safely just close the existing ISA, wait till April 6th and open a new ISA and deposit all the cash as new money. An advantage of doing this is that you can use an account that doesn't accept new money - these sometimes pay slightly more. eg I think the best-buy AA account at the moment is new-money only. Assuming it survives until April 6th

EDIT: The official rule is that you should transfer an ISA. There seems to be an unofficial rule that they will let you get away with closing your current cash ISA, taking the cash down the road and opening a new cash ISA the same year. Apparently they will let you do this once (ever). Not something I'd try, but it is another way of getting opening a no-transfers-accepted ISA.