Keep Cash ISA or open Help to Buy ISA?

Rippel

Hi, I was hoping for some advice on by best option to end up with the best deposit for our first house.

I have around £6000 in a Cash ISA with HSBC, with an interest rate of 1.3% AER, 1.1% after 11 Jan 2016. I have paid into this ISA this tax year.

I gather that if I open a Help to Buy ISA (Halifax offers 4% AER so seems to be the best deal) I can deposit £1000 immediately and pay in £200 a month, starting from the same month I open the ISA. However, I believe I'd need to close my HSBC cash ISA in order to 'abide by the rules'.

Considering we believe we'd be in a position to buy a house from April 2016, is it the best idea to set up the Help to Buy ISA and close my cash ISA and move my current cash ISA contents into a "normal" bank account, and transfer £200 to the Help to Buy ISA every month... if this is allowed?
OR
Is there any benefit to just keeping my current cash ISA and not worry about opening the Help to Buy ISA?

Flobberchops

I'd say go for the H2B ISA. It's essentially free money, and even if it's capped at £3000 over the course of 4+ years there's not many of us in the position to turn down free cash. Even if you're not sure you'll want a house below the value threshold it's surely worth opening the account just for the 4% tax free interest.

As far as I'm aware there's no obligation to close previously open ISAs. You can't add to any other cash ISAs in the year you open the HTB one, but you could keep your £6000 sitting there earning interest, make transfers, etc.

jimjames

If you only have £6000 then you can get 5% on that outside an ISA so maybe open the HTB ISA and look at alternative places to keep that.
Although the difference between 5% and 1.3% on £5000 isn't going to be massive between now and April.

Rippel

I have paid in to my cash ISA during this tax year, so I presumed the only way I could open the Help to Buy ISA this month would be by closing my cash ISA. So, I guess being sure of what I am allowed to do here is the only thing stopping me from opening the HTB ISA right now.


Thanks for the advice so far, guys.

ShowUsTheMoney

If your existing cash isa has a zero balance. Do you need to close or can you just start a new one (and pretend the old one never existed) ?

PawelK

Please see my earlier post. I visited few banks today (incl. santander and hsbc) and understood that if you were making contributions into your cash isa this tax year, in order to open htb you nned to now wait until the next tax year. The only exception being Nationwide where you can transfer your existing cash isa, open htb and keep two isas with them.

MDMD

PawelK wrote: »

Please see my earlier post. I visited few banks today (incl. santander and hsbc) and understood that if you were making contributions into your cash isa this tax year, in order to open htb you nned to now wait until the next tax year. The only exception being Nationwide where you can transfer your existing cash isa, open htb and keep two isas with them.

This is correct. You can only pay into one cash ISA in any tax year, you can transfer your entire current year contributions to another ISA but this generally won't work with HTB due to the limits in place. Unless you transfer to an ordinary ISA with one of the providers that use a wrapper you can't pay in to a HTB until April. But as the limits are low, and the balance is £6000 you will probably be better off outside an ISA, using current accounts and regular savers.

PawelK

MDMD wrote: »

This is correct. You can only pay into one cash ISA in any tax year, you can transfer your entire current year contributions to another ISA but this generally won't work with HTB due to the limits in place. Unless you transfer to an ordinary ISA with one of the providers that use a wrapper you can't pay in to a HTB until April. Bssut as the limits are low, and the balance is £6000 you will probably be better off outside an ISA, using current accounts and regular savers.

with regards to your last sentence - do you imply that closing current cash isa now would still enable you to open htb this month and contribute 1200 allowance? Because for me, regardless whether you move your savings from cash isa to current accounts and regular savers or not, you will not be allowed to open htb until April next year.

MDMD

No, I was saying that the OP might want to forget about ISAs altogether (as many others have). Closing the ISA will have no impact on whether you can pay into a new one (you can't). In fact if you close it you can't then pay into any cash ISA at all with new money until April. You can open as many as you like , it's paying into one ISA per year which is the restriction.

jimjames

If you withdraw all but £1200 from the ISAyou paid into this year you can then transfer to a HTB ISA

Rich2808

MDMD wrote: »

This is correct. You can only pay into one cash ISA in any tax year, you can transfer your entire current year contributions to another ISA but this generally won't work with HTB due to the limits in place. Unless you transfer to an ordinary ISA with one of the providers that use a wrapper you can't pay in to a HTB until April. But as the limits are low, and the balance is £6000 you will probably be better off outside an ISA, using current accounts and regular savers.

Yes as you suggest if you open a help to buy isa with Nationwide, Natwest, RBS, Newcastle or Aldermore you can open a cash isa and a help to buy isa in the same tax year and pay into both as they allow split isas. With Nationwide you could in theory invest into seven different cash isa products as long as you invest no more in the HTB isa than £1200 in month one and then £200 thereafter and your total isa investment - cash plus HTB - is no more than £15240.

You can also transfer isas from other providers to these to benefit from this.

Whether you want a cash isa given the awful rates as a basic rate taxpayer is another matter - there are better options like regular savers and high interest current accounts. But you can open both with these named providers.