ISA Advice

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
7 replies 1.2K views
Marvo5Marvo5 Forumite
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Hi All, I'm after advice or at least confirmation of what I think is correct.

By luck or by a stroke of genius I have a 2-year fixed rate TSB ISA matures 8th March. The rate was 1.8% but when it matures it goes to 0.2%. Anyway, obviously I'm not leaving it with TSB and I quite like the 2-year fix so I'm considering moving the money over to Paragon, currently advertised at 1.67%. Now, am I right in thinking that if I move the money over on the 9th March, I'll be able to add to it next years £20,000 allocation on the 6th April? It says I have 30 days from opening the account.

This is all of course unless something better comes along in the meantime.

Replies

  • eskbankereskbanker Forumite
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    Marvo5 wrote: »
    Now, am I right in thinking that if I move the money over on the 9th March, I'll be able to add to it next years £20,000 allocation on the 6th April? It says I have 30 days from opening the account.
    The key terms are "You have up to 30 days from the date of your application to make your opening payment" but also "You can make additional deposits and transfers into your new account for 15 business days after your opening payment. Once this time has passed you will not be able to make any further deposits or transfers into your account."

    So, if they count the transfer as the opening payment then you'd only have 15 business days, not 30, before paying in the additional £20K, although with Easter coming up that's less of a difference than usual. Generally ISA rules do differentiate between transfers and payments (e.g. the former doesn't affect annual allowances) but in your shoes I'd check with Paragon first and ensure you plan your dates carefully thereafter - for example, you might find it worthwhile to accept the lower interest for, say, a week in between the two fixed periods if that gives you time to get everything done in the right order....
  • ValiantSonValiantSon
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    If Paragon accept transfers in then you can transfer your existing ISA to them and then after 6th April you have a new £20,000 ISA allowance that you can also use with them.

    Have you checked, however, that an ISA is the best option, as cash ISA rates are currently less good than equivalent non-ISA accounts, for example on the two year fixed ISA with Paragon you will be paid 1.67%, but on a two year fixed rate savings bond you could earn 2.1% with Atom Bank or, if you didn't want an app only account, 2.09% with PCF Bank.

    If you do stick with an ISA then take note of eskbanker's advice regarding timescales.
  • Marvo5Marvo5 Forumite
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    Cheers guys, I will indeed be careful with dates, like eskbanker says, open the new ISA with the transfer within 15 days of the new tax year. Of course it might not be Paragon then, last week Virgin had the best 2 year fixed rate so who knows.

    Funnily enough ValiantSon the money to increase the ISA will come from ATOM, I have a one year saver with them at 1.98%. However I have to pay tax on that whereas with the ISA I wont. I'm not a mathematician so can't say for sure which is the best rate, 1.67% (no tax), 2.1% less 20% but I wouldn't have thought they'd be more than a couple of quid in it either way and it surely would be better to increase by non-taxable holdings?

    Anyway again, thanks for the help guys, much appreciated.
  • edited 27 February 2018 at 10:00PM
    ValiantSonValiantSon
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    edited 27 February 2018 at 10:00PM
    Marvo5 wrote: »
    Cheers guys, I will indeed be careful with dates, like eskbanker says, open the new ISA with the transfer within 15 days of the new tax year. Of course it might not be Paragon then, last week Virgin had the best 2 year fixed rate so who knows.

    Funnily enough ValiantSon the money to increase the ISA will come from ATOM, I have a one year saver with them at 1.98%. However I have to pay tax on that whereas with the ISA I wont. I'm not a mathematician so can't say for sure which is the best rate, 1.67% (no tax), 2.1% less 20% but I wouldn't have thought they'd be more than a couple of quid in it either way and it surely would be better to increase by non-taxable holdings?

    Anyway again, thanks for the help guys, much appreciated.

    If you'd pay tax on the lot, i.e. you have hit your £1,000 allowance with other savings then the two rates actually work out at almost the same return after tax, so the ISA is probably the better option as the money is then locked away from tax issues in the future.
  • edited 28 February 2018 at 2:03PM
    Paul_DNAPPaul_DNAP Forumite
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    edited 28 February 2018 at 2:03PM
    If the 0.2% account it will mature into, then it would be simpler to leave it there until the new tax year starts and then do the opening, the transfer and adding new funds all at the same time. This costs you about a month's interest though.


    But, the end/start of the tax year is "ISA Season" and there is a possibility of a bit of competition for your money with some rates getting nudged up? It's a gamble.

    Marvo5 wrote: »
    I'm not a mathematician so can't say for sure which is the best rate, 1.67% (no tax), 2.1% less 20% but I wouldn't have thought they'd be more than a couple of quid in it either way and it surely would be better to increase by non-taxable holdings?


    Say you had £1,000 in them for the full year, the interest you will earn is:


    1.67% = 1,000 * 1.67% = £16.70
    2.10% = 1,000 * 2.10% = £21.00 - but the 20% tax (21 * 0.2 = 4.20) leaves you with £16.80


    (you can also work it out by taking 80% of the rate, so 2.10 * 0.8 = 1.68 to see the rate after tax)


    So the 2.10% with tax just edges it, by ten pence per grand. But I'd agree with ValliantSon, the longer term benefits of getting it in an ISA wrapper may come into play when (if?) rates rise a bit and more of your earnings fall over the personal savers allowance.
    (Although I could be wrong, I often am.)
  • Marvo5Marvo5 Forumite
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    Paul_DNAP wrote: »
    If the 0.2% account it will mature into, then it would be simpler to leave it there until the new tax year starts and then do the opening, the transfer and adding new funds all at the same time. This costs you about a month's interest though.


    But, the end/start of the tax year is "ISA Season" and there is a possibility of a bit of competition for your money with some rates getting nudged up? It's a gamble.

    In the Paragon terms it says if after you've opened the account and providing you make your initial payment within 14 days they will honour the rate advertised and if in the meantime the rate is raised they will let you have that rate instead. Guess you could do that yourself but nevertheless takes away a little bit of the gamble of going early?
  • Marvo5Marvo5 Forumite
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    Paul_DNAP wrote: »

    Say you had £1,000 in them for the full year, the interest you will earn is:


    1.67% = 1,000 * 1.67% = £16.70
    2.10% = 1,000 * 2.10% = £21.00 - but the 20% tax (21 * 0.2 = 4.20) leaves you with £16.80


    (you can also work it out by taking 80% of the rate, so 2.10 * 0.8 = 1.68 to see the rate after tax)


    So the 2.10% with tax just edges it, by ten pence per grand. But I'd agree with ValliantSon, the longer term benefits of getting it in an ISA wrapper may come into play when (if?) rates rise a bit and more of your earnings fall over the personal savers allowance.

    ATOM have today reduced their rates so the decision is even simpler. Just got to hope others aren't thinking of following suit anytime soon.
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