Standing Order Payments into an ISA

TightAndy

My Father passed away last year and my Mother has asked me to look into their savings as her latest annual statement showed very low interest rates.
I looked at her cash ISA with the HSBC which was opened a number of years ago by 'a helpful young man on a visit to the bank' (i.e. push sold to an elderly couple) and had been set up with a standing order of £50 being paid into it each month from her current account; this ISA dropped to a very low interest rate some time ago.
I immediately stopped the standing order and attempted to open a new cash ISA with a much better interest rate in order to transfer the funds into it, which HSBC refused to allow.
The reasons given were that, because the last payment from the standing order occurred in the new tax year she had effectively paid into an ISA during this tax year (even though the ISA had been opened years before) and so the rules prevented her from opening a new ISA with HSBC or any provider. As such her only option, for ISA investment, was to pay into the existing (0.2%) ISA up to the current limit (less the £50 already paid in April).


Is this strictly true?
Because the ISA had been set up with this standing order of £50 per month she has effectively been trapped into not being able to open a better ISA this year! Even with another provider?

eskbanker

No, it isn't true - she can open an ISA with any other provider, as long as the product allows transfers in (perhaps the HSBC product you asked about didn't), and use the new provider's transfer process to transfer all the money from the old one into the new.

Having said that, cash ISAs are all pretty poor value for money now so there may be better homes for her money, have a read of http://www.moneysavingexpert.com/savings/which-saving-account

Vortigern

No, not strictly true!

She can open a new ISA with a provider that accepts transfers in.
She should ask the new provider to arrange the transfer of funds from HSBC.
She must not pay any new money into the new ISA until the transfer is complete.

After the transfer is complete she can pay in the balance of this year's allowance.

N.B. Most ISAs have poor rates these days. Current accounts earn more.