Cash ISA transfers and new contributions?
|Saving | Cash ISAs
Asked by mtp56, submitted
20 February 2011.
I have £5100 in a cash ISA and the bonus interest rate is ending in mid March, so I'll obviously have to transfer to a new ISA with better rates at that stage.
I have not made any deposits into my ISA this financial year. It is the only cash ISA I have.
Should I deposit another £5100 into it now before the end of the preferential rate and is it permissable to then transfer the full £10200 plus interest into the "transfer" ISA before the end of this financial year?
And thereafter would I still be able to open a new ISA with a further £5100 at the beginning of the new financial year in April?
I've never really understood the rules regarding cash ISAs. Could you please try to clarify these points for me?
Answered by Justin on 23 February 2011
Let’s start with a quick recap of cash ISA rules. You can contribute up to £5,100 this tax year (ending 5 April) and up to £5,340 next tax year.
If you make any withdrawals that part of the allowance will be lost forever, but you are allowed to transfer cash ISAs (including interest) into other cash or stocks & shares ISA accounts without affecting your allowance. The only restriction is that if you transfer a cash ISA in the same tax year that you opened it then you must transfer the whole holding to the new provider – otherwise you can split your transfer between several providers if you wish.
When you want to transfer it’s vital you don’t withdraw the money yourself, as you’ll lose the allowance. Instead choose a new ISA provider and they’ll arrange moving the money across (after you complete their application form).
The trouble is most banks and building societies are very slow at this. Transfers are supposed to be completed within 15 working days, but it’s not uncommon to wait a month or more. There’s no excuse for this, but providers have little incentive to rush as they can avoid paying interest while your money is between accounts – it really needs tough regulator intervention but I won’t hold my breath.
So yes, it’s possible to contribute into your existing cash ISA this tax year then transfer it all to a new provider whenever you wish (it could be split between several providers from the next tax year). Your £5,340 allowance for the 2011/12 tax year will then be available to use in full.
However, given transfers are often slow (as mentioned above) it might make more sense to choose a new provider for this year’s £5,100 contribution with a view to transferring in your existing cash ISA when the bonus ends. You could then top up this ISA with next year’s contribution or use a separate provider for that depending on the best rates available at that time.
The only thing to bear in mind is that some ‘best buy’ ISAs don’t allow transfers in – the accounts are often loss leaders and could cost the bank/building society too much given transfers in are likely to be for a lot more than the £5,100 new contribution allowance. So check this when choosing a new cash ISA ccount.
Hope this helps.
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