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2015/2016 ISA: s&s now or transfer?

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I still have my full ISA allowance to use for this financial year. I already have enough in cash so I am going to invest the full amount in a "stocks and shares" ISA.

It's going to be a few weeks before I've read and thought enough to decide what I will be investing in so it's going to be in cash for that long, regardless of the type of ISA.

I don't think a couple of weeks will make a big difference so was going to go for a stocks & shares ISA, but I thought I'd ask what I believe to be a stupid question anyway:

So, any suggestions on whether there's any advantage in opening some particular cash ISA instead then transferring it to a stocks and shares ISA once I've made my mind up about the investments? (i.e. likely in the next financial year)

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  • xylophone
    xylophone Posts: 44,634 Forumite
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    You could open a stocks and shares ISA before the end of the tax year and hold the cash within the S&S ISA pending investment - however, you would earn no interest on the cash within the ISA.

    You might prefer to open a cash ISA and earn some interest while you are thinking about how and where you will invest - you can then ask your chosen S&S ISA provider to arrange the transfer from the cash ISA to the S&S.
  • Eco_Miser
    Eco_Miser Posts: 4,708 Forumite
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    £15000 in a cash ISA earning 1% AER gets £12.50 a month. If you are going to take months deciding you might as well be earning something; if just a couple of weeks, then the extra mess about isn't worth it.
    Eco Miser
    Saving money for well over half a century
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    Eco_Miser wrote: »
    £15000 in a cash ISA earning 1% AER gets £12.50 a month. If you are going to take months deciding you might as well be earning something; if just a couple of weeks, then the extra mess about isn't worth it.
    I agree there's no real reason to open a cash ISA to catch an extra couple of weeks of 'earnings' - because the interest earned will be minimal.

    The reason to choose a cash ISA over an S&S ISA now is because S&S providers accounts come in all shapes and sizes in terms of fee structure, and some have exit fees. Once you know what it is you want to invest into, you can then decide on where to hold it, but you don't want to just park cash with a provider who might turn out not to be competitive for what you want to hold, and charges a transfer out fee or an account closure admin fee or both. Whereas by contrast, an instant access cash ISA can probably set up with your own bank online in less than a minute and will not have any fees to close it.

    So, what pushes you towards getting a cash ISA temporarily is not the fact that there's a tiny bit of interest to be made, but the fact that with one minute's work you can catch the ISA deadline for the allowance before you lose it, without being committed into a structure that might be uncompetitive and takes more than a few minutes to evaluate properly.

    For example.
    I bank with Lloyds, among others. I have no idea what the cash ISA rate is and I don't care, but I know they'll give me an ISA account in about a minute using cash that I already have on my online banking platform with them. I catch the ISA deadline.

    Alternatively I know I want an S&S ISA but don't know what I'm going to invest in, and I figure I can transfer it anyway so what does it matter. I hear a lot about Hargreaves Lansdown as they are a massive listed company and popular in the DIY market and always giving soundbites to journalists in the media every ISA season. I pick them at random and give them my £15k.

    Then later I decide what I want. I decide my £15k will be invested in two investment trusts. Hargreaves Lansdown charge £45 a year admin fee for a £15k ISA holding investment trusts (after the initial broker transaction fees to buy them) while TD Direct charge £0 after the initial buying fees. So I go to move my money out to TD. I pay HL a £25 cash transfer out fee and a £25+VAT account closure fee (they'll open an account for free, but need to make their money somewhere). Oops.

    Alternatively I decide I will buy three 'funds', open ended investment companies. Hargreaves Landdown want to charge 0.45% of my account value every year for this, so when my account is going to be £15-£20k over the next year it will cost me £67-90. Meanwhile, Youinvest only charges 0.2% of account value plus £1.50 to buy each of the funds, which will cost £35-£40 for the same period. So I go to move my money out. And get hit with a charge. Oops

    So, picking the wrong provider for your needs can be costly and until you know more about what you want to buy, it's not always obvious who the best provider for your needs is going to be. The money-saving-expert thing to do is not to commit to using a provider until you know you actually want to use them, and this may take time to work out.

    So, I would avoid committing to any S&S platform until after doing that, and if this causes a problem in terms of needing to catch the 5 April deadline, stick it in any instant-access cash ISA with your bank. As Eco Miser says, whether the rate is 0.5% or 1% or 1.5% it is only a few quid over the next couple of weekends while you think about it properly, so it doesn't really matter whose cash ISA you use.

    If your money is already in a high interest current account earning 3%+ or so, you might as well keep it there until the end of next week and then put it in the cash ISA a bit closer to the deadline. If your money is not in a decent current account yet it's probably not worth your spending much time shuffling stuff around for another week's interest so you might as well put it in the cash ISA now.
  • Plus
    Plus Posts: 433 Forumite
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    Also, opening a relationship with a new provider is not always straightforward. They might demand to see a certified copy of your passport, your back catalogue of utility bills, or some other annoying requirement. What you don't want is for the clock to be ticking while you're doing this - at this time of year the provider will be very busy and could easily run out of time.

    Much easier to park the money in a cash ISA with whoever you bank with now and transfer in the new year. Then the pressure is off and you can make an informed decision.
    If the money is earning decent interest at the moment, you could leave it a little longer to transfer the cash, but make sure you open the account now ready to receive the transfer in a week or so. It could easily take a few days for the backoffice people to sort out opening.
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