Most efficient way of managing an ISA which is over the 85k protected limit

wabisok581

Hi all,

I'm in a bit of a conundrum - I've only recently realised (stupidly, over the age of 30+) about the 85k protected limit for banks and I currently have a Cash ISA which is over 85k (I've been adding to my cash ISA over the years and now am at about 110k). On top of that, my current ISA interest rate is a measly 0.10% AER. Also just to mention, at some point in the next 1-2 years, I am considering purchasing a house.

Now that I've realised that 25k is potentially at risk, I'm thinking of some different options:
A. Transfer £60k from my current ISA to a new ISA provider giving a higher interest rate, and then pay £20k in cash for this tax year. (Total being £80k with some room for interest to be protected). The remaining £50k will stay in my current ISA.
B. Transfer £60k from my current ISA to a new ISA provider giving a higher interest rate, and then pay £15k in cash for this tax year. (Total being £75k with some room for interest to be protected). The remaining £50k will stay in my current ISA. Separately open a Stocks and Shares ISA and contribute £5k for my first try at investments.

In terms of questions that I have:

1. Would either of the options above be the most efficient way of trying to protect all my money, or are there any other suggestions?
2. What happens to a previous years ISA when you open a new one with another provider? Does it still accrue interest (and is that then taxable, or does it continue to be tax free)?

Thanks for any help and tips that you're happy to provide!

grumiofoundation

Do you actually need to save in an ISA as opposed to a normal savings account? (E.g. are you paying interest on savings?)  

you could look at premium bonds for 50k. The expected (average luck) return would bb ~0.9%, which is higher than cash ISA/savings account interest available. 

If the house you are looking at buying is <450k (and you will buy with mortgage and edit: you are FTB) you could look at opening a lifetime ISA. 4K this tax year and 4k next tax year would give you a 2k bonus in 12 months time. 

https://www.moneysavingexpert.com/savings/lifetime-isas/

1. Money in investments is not protected in the way cash is (I.e. capital is at risk).

2. interest is all tax free within ISA - although as above would you actually pay interest on this? As long as you use ISA transfer process (I. e. Don’t withdraw/contribute yourself manually transferring ISAs doesn’t impact the tax-free status of your cash). 

masonic

TBH if the money is being put towards a house in 1-2 years, I'd just withdraw £50k and stick it in premium bonds. Problem solved.

Lifetime ISA is well worth considering if you will definitely not buy for at least a year and are eligible to use the scheme for a first home purchase.

Albermarle

In reality you are concentrating on the wrong issue.
You have a lot of cash savings earning a pittance and losing value all the time against inflation . This is 100% certain .
You are worrying about the very small chance of the savings institution you are with going bust at some indeterminate point in future  , especially if it is a household name .
For now the though the advice above is good - Premium Bonds- Lifetime ISA etc 

wabisok581

grumiofoundation said:

Do you actually need to save in an ISA as opposed to a normal savings account? (E.g. are you paying interest on savings?)  

you could look at premium bonds for 50k. The expected (average luck) return would bb ~0.9%, which is higher than cash ISA/savings account interest available. 

If the house you are looking at buying is <450k (and you will buy with mortgage and edit: you are FTB) you could look at opening a lifetime ISA. 4K this tax year and 4k next tax year would give you a 2k bonus in 12 months time. 

1. Money in investments is not protected in the way cash is (I.e. capital is at risk).

2. interest is all tax free within ISA - although as above would you actually pay interest on this? As long as you use ISA transfer process (I. e. Don’t withdraw/contribute yourself manually transferring ISAs doesn’t impact the tax-free status of your cash). 

I have a separate savings account with NS&I, but wanted to use as much of the tax-free savings in the ISA.
I'll definitely have a look into the premium bonds.
I was considering a Lifetime ISA, but as you mentioned the house price needs to be below 450k (which in London makes it more difficult) and I would expect the house price to be slightly above that number, so I don't think I would be eligible.

2. Okay, in that case I would end up having multiple ISAs (each one accrues interest which is tax free). As long as manually withdrawing from an old ISA doesn't impact the new year tax free status (which I presume it does not).

xylophone

If you are taking £50,000 to buy premium bonds,  that leaves you £60,000 in the ISA.

You could then arrange for the transfer of that £60,000 to an ISA with a better interest rate and add this year's ISA allowance to that.

https://www.moneysupermarket.com/savings/isas/