Should I close my Help to Buy ISA?

Mythcolour

The long and short of the below is: Should I transfer my money from Help-To-Buy into Easy Access Saving?

For context...

I recently signed up for the 5.2% Santander Easy Access Saver (thanks Martin and team!). It's an amazing account and I am currently in the process of moving over and consolidating as much of my savings (currently in lower-interest accounts) to this new savings account to maximize the interest I can receive from it. And this brings me to the conundrum I face.

For the last 3-4 years I have been saving for a house. When I first started, I had a Help-to-Buy account and then a year later I found out about LISAs (again thank you Martin and team!) and opened one of these as well. At the time I wasn't sure when I was going to buy a house so I kept both open and have been putting the maximum amount away in both since.

I recognized at the time that I could only get the 25% government bonus from one of the accounts, so Plan 1 was to use the money in the Help-To-Buy if I wanted to put a deposit down before the LISA caught up in value with the Help-To-Buy. Otherwise, roll Plan 2 where I would use the LISA for the 25% bonus, and then I would transfer the money from the Help-To-Buy out (as this is allowed unlike with the LISA) and put it towards the total deposit against a mortgage.

Now, as I sit here typing this I still have less in my LISA than my Help-to-Buy, however, my personal circumstance (and honestly the state of the housing market right now) mean that I am 100% going to be buying a house after my LISA surpasses the Help-To-Buy, AKA queue Plan 2. 

With this in mind, I got to thinking, "What if I just transfer the money out of my Help-To-Buy and double my interest rate on the money I have already saved?".

I did the maths and I worked out I could get an extra £250 something interest a year if I transfer the money into this new Santander account with the rest of my savings.

Now I am a meticulous budgeter so there are no issues with me dipping into this money. Moreover, I will still be contributing the same amount each month into this savings account so I'm not changing the rate my savings will grow. 

The question I suppose I am asking is... Have I missed something? Is there some reason I shouldn't be doing this?

Any thoughts or advice on my scenario would be greatly appreciated!

Bridlington1

Just be aware though that the LISA does come with a 25% penalty if you need to withdraw the money before you buy your first home so if there is any doubt over whether you will buy a property then it may be best to stick with the H2B ISA.

That said if you will definitely use the money to buy your first home and will have more in the LISA than the H2B ISA at the time you do buy then I'd say transferring the H2B ISA elsewhere and using the LISA for your house deposit would be a very good idea. 

One thing I would suggest is that it may be worth transferring the H2B ISA to a flexible cash ISA so that you can withdraw the funds from it and still have the option to preserve the tax free allowance for the funds you have put into it during the current and previous tax years.

Other than that if you really want to maximise your interest and don't mind a bit more admin you may also want to consider drip-feeding the money from the 5.2% Santander account into some regular savers at a higher rate as well. See:
https://forums.moneysavingexpert.com/discussion/6106986/regular-savings-accounts-the-best-currently-available-list/p1

You can also find a list of regular savers on moneyfacts:
https://moneyfactscompare.co.uk/savings-accounts/regular-savings-accounts/?quick-links-first=false

Mythcolour

Thanks for the information its good to know my logic was making sense. I'm 100% going to be using the money for a house so a LISA suits me fine.

I'm also drop feeding into regular savers although looking at your list I realise there's a few more I could sign up for! Thanks.

Would you be able to go into a bit more detail regarding the Cash ISAs you mentioned? Are you suggesting that I transfer the funds into a cash ISA first and then into my new Santander account? What are the benefits of that?

Thanks again!

Bridlington1

Mythcolour said:

Thanks for the information its good to know my logic was making sense. I'm 100% going to be using the money for a house so a LISA suits me fine.

I'm also drop feeding into regular savers although looking at your list I realise there's a few more I could sign up for! Thanks.

Would you be able to go into a bit more detail regarding the Cash ISAs you mentioned? Are you suggesting that I transfer the funds into a cash ISA first and then into my new Santander account? What are the benefits of that?

Thanks again!

My point regarding cash ISAs was that if you withdraw the money straight from the H2B ISA you would lose some of your tax free allowance. Say you had £9k in the H2B ISA now, which included £1k that had been paid into the H2B ISA so far this tax year. If you withdraw the full balance now and then later on you wanted to put money into another cash ISA before the end of the tax year for whatever reason, you'd only be able to put £19k back into ISAs (£20k minus the £1k you've paid into ISAs this year already). If on the other hand you'd transferred the H2B ISA into a flexible cash ISA first and then emptied it you could put £28k into ISAs before the end of the tax year if you wanted to (£20k plus the £8k you'd paid into the H2B ISA in previous tax years).

This point is mainly in case you are in a position where you need to pay tax on savings interest and would benefit from keeping a large amount in cash ISAs. Also I seem to recall late last year Virgin Money offered an easy access flexible cash ISA that paid a higher rate of interest than any non-ISA easy access account at the time. If any bank/building society do this in the future it would be handy to have a larger tax-free allowance regardless of your own tax position so you can put more in the cash ISA.

Therefore I would suggest you transfer the H2B ISA into a flexible easy access cash ISA and then withdraw the money from the flexible ISA once the ISA transfer is complete.