Restrictive ISA rules for those with over £85k

lskywalker

Would be interested to get thoughts/opinions on what people, who have in excess of £85,000 in existing current ISA products, are doing in order to take advantage of the high Cash ISA rates currently available. 

Both my wife and I have built up our ISA pots over quite a few years. Currently we have circa £350,000 cash each in a Stocks and Shares ISA. Ideally we would now like to switch all of those funds into a fixed Cash ISA and get a circa 5% risk free return. 

The catch is that we can only get FSCS protection on £85,000 each in a single account in the event of a bank going under. We aren’t allowed to open more than one Cash ISA account in the same year.

It just seems like a ridiculous system whereby we’ve been encouraged to save and have built up a pot of retirement cash but are seemingly unable to take advantage of the recently improved Cash ISA rates unless we are willing to take a risk and invest more than the £85,000 threshold. 

I can’t see any reason why people shouldn’t be able to invest in multiple Cash ISAs. I understand you can’t put in more than your yearly £20,000 allowance but why penalise people with pre-existing funds built up over years? In my view either the protection level in ISAs should be much higher or, more sensibly, we should be able to invest existing funds into more than one product. 

Interested to hear what others have done in this situation. I’m guessing anyone who has paid their full allowance into ISAs each year for five years finds themselves facing this challenge. Do you just take the risk that a big bank like Lloyds won’t fail and stick all your ISA cash with them?

Thoughts welcomed!

Thanks

RetiredTaz

As far as I know, you can open multiple cash ISA's and transfer your current ISA between the new ones. You can only fund one ISA with new money though (for current tax year) . 

mebu60

Assuming your S&S ISA provider permits partial withdrawals (many don't, including Fidelity) you could open say 5 Cash ISAs and transfer £70k to each (allowing for interest accumulation over the next few years to maintain balance below £85k).
If your S&S ISA provider does not permit partial withdrawals, open 1 Cash ISA to transfer the lot to first before opening subsequent Cash ISAs and doing partial transfers.
Ensure that the Cash ISAs accept transfers-in! The new Cash ISA provider will action the transfer process. You will need to have sold any shares / funds / etc so all is in cash. I note you said you have £350k cash in each. I have assumed you meant total value.

Shedman

You can open multiple ISAs with multiple providers and fund them via transfers.  But the issue is more likely to be whether your S&S ISA provider(s) allow partial transfers out or not.  If they do then not too much of an issue as you can directly transfer as much as you feel comfortable with to each different Cash ISA provider.  

If they don't allow partial transfers out then you are likely to have to go through two stages i.e. transfer them out to one Cash ISA provider (who does allow partial transfers out) and then do partial transfers out to multiple new providers.  Clearly, in the latter case, it would then make sense to transfer out to Easy Access Cash ISAs first (so you don't get caught with any interest penalties on closing fixed rate ISAs) if you then subsequently partially transfer them on to other providers.  

Zolablue

As RetiredTaz has said. You can open multiple cash ISAs to transfer previous year's allowances into but you can only put new money into one. 

eskbanker

lskywalker said:

I can’t see any reason why people shouldn’t be able to invest in multiple Cash ISAs. I understand you can’t put in more than your yearly £20,000 allowance but why penalise people with pre-existing funds built up over years? In my view either the protection level in ISAs should be much higher or, more sensibly, we should be able to invest existing funds into more than one product.

As above, you've misunderstood, so you are able to save or invest existing funds into more than one product, as long as you use the receiving provider's ISA transfer process.

Doctor_Who

The catch is that we can only get FSCS protection on £85,000 each in a single account in the event of a bank going under. We aren’t allowed to open more than one Cash ISA account in the same year.

You aren't allowed to open and fund more than one cash ISA per year, but you can open as many as you want for the purpose of transferring pervious years' ISA subscriptions. 

Currently we have circa £350,000 cash each in a Stocks and Shares ISA. Ideally we would now like to switch all of those funds into a fixed Cash ISA and get a circa 5% risk free return. 

You need to decide whether this is a good idea. There are other options like short term money market funds that give ~5% (BoE base rate) with low risk and can be held within the S&SISA. Be aware that some S&SISA providers do not allow partial withdrawals, if that is the case you would need to transfer out everything to a single cash ISA and then transfer again to spread the money around for the £85K FSCS protection.

dunstonh

Both my wife and I have built up our ISA pots over quite a few years. Currently we have circa £350,000 cash each in a Stocks and Shares ISA. Ideally we would now like to switch all of those funds into a fixed Cash ISA and get a circa 5% risk free return. 

As others have mentioned, your understanding of the ISA allowance is wrong and they have covered that.  However, be careful of making a decision based on short term movements.    Certainly, cash deposits are a viable alternative for the defensive part of the portfolio but not for your equity part.   Indeed, its likely that the equity part of your portfolio has been doing a lot better than cash savings.     

Around 1 in 5 years would see cash savings better than equities.  So, putting it all in the 1 in 5 option means that 4 in 5 you will be likely worse off.

eskbanker

As above, cash isn't necessarily a better option than S&S, despite the superficial appeal of interest rates higher than the recent past, but it doesn't have to be all or nothing - you're presumably not anticipating burning through the entire £350K in the short term, so you might want to split the pot to use cash for buffering the next few years' worth of projected expenditure and keeping the rest invested? 

XzavierWalnut

The advantage of having several ISAs is you can pick different fixed periods, which can be advantageous over a period of time as rates change. You may not get the highest rate every time, but it does give flexibility.

Mr_blibby

Just gone through a similar process but with two S&S ISA (me and partner) . Had to move all from Fidelity (no partials) first to another provider and then into separate ISAs (£85k if paying interest away or £75k if compounding it over say 3 years) - its is a bit of chore to finds accounts that 1) accept that level of transfer 2) can do it via bacs transfer (rather than paper form and cheque) and 3) get competitive rates (if you also have any other accounts (eg Easy Access) with same provider then £85k in the ISA eliminates that option to stay under FSCS limit)... Also note that some S&S ISA providers will implement a freeze on trades whilst a transfer is being implemented to ensure cash funds remain available.....Be prepared for periods of time (up to 10 days) where funds have disappeared from one provider and not appeared in the other and during that time someone is making interest on the money, but it wont be you ....