What to do with matured ISAs?

George_Mainwaring

I have two 5-year fixed-term cash ISAs from this and the last tax years.

My plan is to get a new one every year until I have 5 open at the same time, and then use the money from each year's maturing account to fund a new ISA for that tax year.

Is this a good idea, or are there cleverer things to do with a maturing cash ISA that could allow me to use new savings to start each new ISA?

badger09

George_Mainwaring wrote: »

I have two 5-year fixed-term cash ISAs from this and the last tax years.

My plan is to get a new one every year until I have 5 open at the same time, and then use the money from each year's maturing account to fund a new ISA for that tax year.

Is this a good idea, or are there cleverer things to do with a maturing cash ISA that could allow me to use new savings to start each new ISA?

I'm not sure what you mean when you say
I have two 5-year fixed-term cash ISAs from this and the last tax years.

Do you mean you last year and this year (since 6th April 2012) you have subscribed to 5 year Fixed Rate ISAs, which will mature in 2016/17 and 2017/18 respectively?

Not a cleverer thing as such, but if you can afford to fund a cash ISA with 'new money' each year, why use up your allowance by withdrawing and starting again? :eek:

Funds transferred from previous years' ISAs do not affect your annual allowance, as long as you use the new provider's transfer process and don't withdraw money and pay it in yourself - which is what you seem to be suggesting:(.

When your ISAs mature, find a provider who accepts transfers into an ISA for however long you want to tie up your funds.Transfer the maturing ISAs but open one each year to pay in 'new money'

jimjames

As above, don't withdraw money from ISAs to put into another if you can afford to put new funds in. Any money you withdraw loses its tax free benefit and you have also then lost that allowance. Transfer an ISA to a better rate but do't close it unless you need the money and have no taxed savings to use first.

George_Mainwaring

badger09 wrote: »

Do you mean you last year and this year (since 6th April 2012) you have subscribed to 5 year Fixed Rate ISAs, which will mature in 2016/17 and 2017/18 respectively?

Yes. I intend to save new money each year and then take out a new fixed-term cash ISA at the start of every tax year. The longest term I could find was 5 years, so that means I can end up with 5 accounts open at the same time (each with varying amounts of their terms remaining).

When the first account is 5 years old, it will mature and the funds are transferred to a 'matured funds account', which pays next to no interest, so there's no point leaving it there. At this point I intend to use that money to start my 6th ISA and the following year use the money from the next maturing ISA to start the 7th, etc.

badger09 wrote: »

Not a cleverer thing as such, but if you can afford to fund a cash ISA with 'new money' each year, why use up your allowance by withdrawing and starting again?

Well I know interest rates are likely to go up, but as I intend to find new money for each ISA, I thought I'd go for the longest term because it payed the highest interest.

Surely I have to start again because it's a fixed-term ISA? At the end of the term, the fund matures and that's the end of the ISA? And I can't put old money into a new ISA along with new money because it would be more than the ISA limit for each year.

Or am I misunderstanding ISAs?

Let's say today I put the full £5640 into a 5-year fixed term ISA. This will mature in 2017. But for the 2017 tax year, I'll have saved up a 'new' £5640 (or whatever the limit is by then), so I'll be wanting to put that money into a new fixed term ISA for that tax year.

So what do I do with the money that will have just matured from my old 2012 ISA, other than move it into my normal savings account and pay tax on the interest thereafter?

scottishblondie

You are misunderstanding ISAs. When the fixed term ends the account is still an ISA, it will just be paying a rubbish amount of interest. You do not need to start again by withdrawing it and putting it into a new account, you use the ISA transfer mechanism of your new ISA to move the money into a new ISA without it ever leaving the tax free wrapper. This preserves your current tax year's allowance for new money.

mgdavid

you're misunderstanding ISAs.
You get a fesh ISA allowance each year, that allowance lasts for ever as long as you leave the money invested. It doesn't have to be invested in the same account or even with the same provider, as long as you TRANSFER the money from one to another. Do NOT withdraw money yourself and start again as that closes off the original year of investment's tax allowance ans simply uses the current years allowance instead, thus preventing you saving 'new' money this year. When an old ISA drops its interest rate to below what you can get elsewhere, that's the time to choose a new provider with a better rate that accepts Transfers In. You complete their Transfer form and they go and get your money from the old ISA and put it in the new account.

George_Mainwaring

scottishblondie wrote: »

You are misunderstanding ISAs. When the fixed term ends the account is still an ISA, it will just be paying a rubbish amount of interest. You do not need to start again by withdrawing it and putting it into a new account, you use the ISA transfer mechanism of your new ISA to move the money into a new ISA without it ever leaving the tax free wrapper. This preserves your current tax year's allowance for new money.

So in 2017 I can transfer my 2012 ISA containing £5640 to a new 5 year fixed term account paying 4.5% all over again, AND put another £5640 on top of that into a new 2017 ISA?! (or whatever percentages and allowances are available in 2017)

Let's say by 2017 the ISA limit has gone up by £1000 to £6640. My 2012 ISA will only contain £5640 as the interest is paid annually to another bank account. Is there any way to top-up my 2012 ISA to the full allowance for 2017 when I transfer it? Or even allow the interest to be paid back into a maxed-out ISA during the fixed term?

And when you say 'transfer', does this mean I can just ask my existing bank to do all this to my 2012 ISA if I'm still using them in 2017, or does it have to be transferred to another bank?

Jevvers

You were right on your first bit and wrong on the second. Your ISA allowance remains "belonging" to the year in which you took it out but you can transfer that year's allowance (or several) to a new provider AND take out the current year's allowance.

So to use your example in 2017, your 2012 ISA of £5640 has nothing to do with the 2017 ISA allowance. You have a whole new ISA allowance each year so in 2017 you could transfer the £5640 AND pay in the new allowance of (eg) £6640.

jimjames

For simplicity assume the ISA limit is £5000 and you put in the maximum over the next 10 years. You will have a total of £50,000 in your savings plus all the interest accumulated over that time (if not withdrawn). All this money will be within the ISA and protected from tax. You can move it to different banks and each of the 10 ISAs could be with totally different providers.

Vortigern

Captain_George_Mainwaring wrote: »

My 2012 ISA will only contain £5640 as the interest is paid annually to another bank account.

You don't have to have the interest paid away to another account. It's better to let the interest roll up in your ISA - and it doesn't affect your allowance.

I don't suppose they had ISAs when you were a bank manager

George_Mainwaring

Thanks to everyone for helping me understand ISAs better.

If I have multiple fixed-term ISAs mature in one year (because 2-year and 3-year ISAs were taken out in different years and matured in the same year), can I transfer them all into a new ISA?

Also, what happens if I have two fixed term ISAs mature at different times of the year? If I open a new ISA when the first one matures, transferring it into the new account, what happens when the second one matures? By then I won't be able to start a new ISA for that year, so how do I transfer it?

Vortigern wrote: »

You don't have to have the interest paid away to another account. It's better to let the interest roll up in your ISA - and it doesn't affect your allowance.

I didn't see any way to do this when I opened my ISA. It was a fixed-term account so I couldn't have any more money added to it once it was open. Also, I paid in the full ISA allowance for this year so I didn't think I'd be able to have anything more put into it anyway.

Since all I was asked for was which account I wanted the interest paid into (I chose my normal every day savings account), what should I have done?

Vortigern wrote: »

I don't suppose they had ISAs when you were a bank manager

Well there was a war on you know ;-)