Cash ISA over the FSCS protection limit

amanda1024

jay_ftw said:

I don't have this kind of money, I'm just educating myself.

So I'm not missing a trick as such, the only real options excluding a pension are

1) Not protected
2) Loads of accounts
3) NSI Direct Saver (3.65%?)

Given the difference in return is about £10k a year (for £500,000 invested in either NS&I's ISA at 3%, or best buy ISAs at c. 5%), it'd be worth taking the extra time to manage the multiple accounts. But all hypothetical since we don't have that kind of money!

j_netprofit

I absolutely agree but say you just came into that money it would take an awful long time to drip feed it into ISAs, but of course worth it. 

refluxer

darwin34 said:

I have a cash ISA which has gone over the protected limit of £85k. When it matures in July, can someone advise best method of dealing with it? 
I was thinking transferring £70-80k to another fixed ISA and the remainder withdrawing and going into a newly opened Cash ISA.

To me, its the only real option?

Thanks for reading. 

Yes, there's no sense in going over the £85k FSCS limit when it's relatively easy to avoid it. I would split the ISA but ensure that no single amount is going to take you back up to the limit too soon, otherwise you'll just have to do the same again in a year or two with those kinds of amounts, at current rates at least. I would either split it in half, or ensure a single maximum of no more than (say) £60-70k to give you plenty of breathing space.  

One important thing you need to do well in advance of the maturity date is to check what the default maturity option is - most ISA providers allow their fixed rate ISAs to default to a 'maturity' / easy access ISA (often with a low rate) if you don't submit instructions or miss the deadline, however there are some who automatically transfer the balance into a new fixed rate ISA with the same duration and it's this latter scenario which you'll need to avoid.

IMO, the best option is to submit maturity instructions in advance, requesting that the balance gets transferred into the same provider's easy access ISA (if they have one), providing that it allows partial transfers out (most do, but you need to check the T&Cs). This has the advantage that it'll (normally) get a better rate than the default option while you're waiting for subsequent transfers to take place. 

If the current provider doesn't have a default easy access option (or doesn't offer easy access cash ISA accounts in general), then things can sometimes get a bit tricky - in those circumstances, reading the T&Cs thoroughly and getting timings right can be crucial in order to avoid problems.

TheBanker

jay_ftw said:

I asked something similar in another thread and didn't really get many replies.

So let's say you have significant wealth, a million pounds already spread over the best part of half a dozen accounts...what do you do? Turn that into a dozen accounts? All starts to get very confusing and much harder to manage.

Should we really be all that concerned if the holding exceeds 85k but is with "major" banks?

If I had millions that I wanted to keep in cash, I would still spread it out across different banks. I may end up holding more than £85k with each bank, but I would still be spreading my risk. For example if I had £2m split across 10 banks, my loss if one of the banks failed would be £115k. Still painful, but better than the £1,915,000 loss I would face if I put all my eggs in one basket. 

I'd also be a bit more choosy about which banks I chose to keep sums over £85k with.

d63

TheBanker said:

jay_ftw said:

I asked something similar in another thread and didn't really get many replies.

So let's say you have significant wealth, a million pounds already spread over the best part of half a dozen accounts...what do you do? Turn that into a dozen accounts? All starts to get very confusing and much harder to manage.

Should we really be all that concerned if the holding exceeds 85k but is with "major" banks?

If I had millions that I wanted to keep in cash, I would still spread it out across different banks. I may end up holding more than £85k with each bank, but I would still be spreading my risk. For example if I had £2m split across 10 banks, my loss if one of the banks failed would be £115k. Still painful, but better than the £1,915,000 loss I would face if I put all my eggs in one basket. 

I'd also be a bit more choosy about which banks I chose to keep sums over £85k with.

How would you choose though?

subjecttocontract

d63 said:

TheBanker said:

jay_ftw said:

I asked something similar in another thread and didn't really get many replies.

So let's say you have significant wealth, a million pounds already spread over the best part of half a dozen accounts...what do you do? Turn that into a dozen accounts? All starts to get very confusing and much harder to manage.

Should we really be all that concerned if the holding exceeds 85k but is with "major" banks?

If I had millions that I wanted to keep in cash, I would still spread it out across different banks. I may end up holding more than £85k with each bank, but I would still be spreading my risk. For example if I had £2m split across 10 banks, my loss if one of the banks failed would be £115k. Still painful, but better than the £1,915,000 loss I would face if I put all my eggs in one basket. 

I'd also be a bit more choosy about which banks I chose to keep sums over £85k with.

How would you choose though?

I would have thought that would be self evident. Surely after discounting those you don't want accounts with (in my case Virgin etc) one would pick those offering the highest interest rates.

We don't have a million in cash but we do currently have 8 cash ISAs, we try to ensure each balance stays around £70k max. It is a PITA continuously transferring them but the alternative would be poorer returns or putting it all in NS&I.

There are other reasons why savers might want to keep well below the £85K limit. Most of us have other accounts with the same banks or B/Soc e.g. regular savers or easy access accounts which need to be factored in to the total balance.

TheBanker

d63 said:

TheBanker said:

jay_ftw said:

I asked something similar in another thread and didn't really get many replies.

So let's say you have significant wealth, a million pounds already spread over the best part of half a dozen accounts...what do you do? Turn that into a dozen accounts? All starts to get very confusing and much harder to manage.

Should we really be all that concerned if the holding exceeds 85k but is with "major" banks?

If I had millions that I wanted to keep in cash, I would still spread it out across different banks. I may end up holding more than £85k with each bank, but I would still be spreading my risk. For example if I had £2m split across 10 banks, my loss if one of the banks failed would be £115k. Still painful, but better than the £1,915,000 loss I would face if I put all my eggs in one basket. 

I'd also be a bit more choosy about which banks I chose to keep sums over £85k with.

How would you choose though?

I'd choose the big banks. Although nothing is guaranteed, I think a balance over £85k is safer somewhere like HSBC than at Clearbank (or one of the institutions that deposits your funds with Clearbank). Firstly because I think HSBC have a stronger balance sheet and more ways to raise additional capital (e.g. a rights issue or selling parts of the business). Secondly because HSBC is both domestically and globally important, so governemnt intervention is more likely. 

But this is already theoretical as my savings aren't at the level where this is something I need to worry about!

darwin34

refluxer said:

darwin34 said:

I have a cash ISA which has gone over the protected limit of £85k. When it matures in July, can someone advise best method of dealing with it? 
I was thinking transferring £70-80k to another fixed ISA and the remainder withdrawing and going into a newly opened Cash ISA.

To me, its the only real option?

Thanks for reading. 

Yes, there's no sense in going over the £85k FSCS limit when it's relatively easy to avoid it. I would split the ISA but ensure that no single amount is going to take you back up to the limit too soon, otherwise you'll just have to do the same again in a year or two with those kinds of amounts, at current rates at least. I would either split it in half, or ensure a single maximum of no more than (say) £60-70k to give you plenty of breathing space.  

One important thing you need to do well in advance of the maturity date is to check what the default maturity option is - most ISA providers allow their fixed rate ISAs to default to a 'maturity' / easy access ISA (often with a low rate) if you don't submit instructions or miss the deadline, however there are some who automatically transfer the balance into a new fixed rate ISA with the same duration and it's this latter scenario which you'll need to avoid.

IMO, the best option is to submit maturity instructions in advance, requesting that the balance gets transferred into the same provider's easy access ISA (if they have one), providing that it allows partial transfers out (most do, but you need to check the T&Cs). This has the advantage that it'll (normally) get a better rate than the default option while you're waiting for subsequent transfers to take place. 

If the current provider doesn't have a default easy access option (or doesn't offer easy access cash ISA accounts in general), then things can sometimes get a bit tricky - in those circumstances, reading the T&Cs thoroughly and getting timings right can be crucial in order to avoid problems.

Yeah, I intend to drop it well below the £85k limit when it gets split to give years of breathing space