Advice please, consolidating ISAs or cash them in and put full lump sum into a new fixed rate ISA?

[sebsmummy1]

Im confused. I have about 6k sitting in an ISA with one bank and around twice that in another with a separate bank. The rates have gone down to under 1% and i'm looking at tying that money up in a fixed rate ISA instead for a higher return.

Lots of them wont accept transfers, the one i'm looking at is a 3 year fixed rate ISA from Nationwide at 2%. It talks about only accepting one lump sum on opening, that can come from fresh money or one transfer. Do you think i would be better off closing down the old ISAs and depositing the full 15k into a new ISA from my current account?

Is the total of your existing ISAs more than this year's ISA allowance (£15,240)? If so you'll lose out by cashing them in rather than transferring.

1. Check Nationwide actually mean only one transfer in. Their wording is a bit ambiguous - certainly with other building societies you can include more than one transfer when opening a Fixed Rate ISA. Maybe have a look at the application form: if there's space to enter details of more than one transfer then you probably can do more than one.

1. If they really don't allow more than one transfer, just open two separate ISAs by transferring your existing ISAs individually.

Transferring existing ISAs doesn't count as opening a 'new' ISA in terms of your annual ISA allowance, so a disadvantage of cashing in instead of transferring is that you'll use up this year's allowance and won't be able to put any 'new' money in for the rest of this financial year.

Have just thought of an advantage of option 2 (transferring individually). The Fixed Rate ISAs don't allow withdrawals but you can close the account (with a penalty of loss of interest). If you needed access to some of your money before the 3 year terms ends, if you have two accounts you could close one of them (and lose interest) but keep the other one open.

with interest rates so bad you need to be clever. There are apparently some signals that things will improve but I'm not holding my breath.

thoughts: (not advice!)

what is your income? Is it low enough not to pay tax on savings? If so, play with current accounts to get better returns.

would you consider stocks and shares ISAs to keep the ISA 'foothold'?

is the difference in interest on the sum you have worth the long fix?

"The Fixed Rate ISAs don't allow withdrawals but you can close the account (with a penalty of loss of interest). If you needed access to some of your money before the 3 year terms ends, if you have two accounts you could close one of them (and lose interest) but keep the other one open."

I do this - I currently have half in a (Virgin) FR for 3 years and half in an instant (with lower interest). Next Feb (a year after the first FR started) I shall put half the instant one into a new fixed one.

At the moment I have c£25k in each, so I shall put £13k in a new fix.

Then the year after I shall do the same again, and end up with only c£7k in an instant ISA. £7k is enough 'emergency' cash (given that this is not actually my emergency cash anyway - I always keep c£6k in a current account linked savings account for emergencies [which I might move to the Lloyds CA paying 4%], plus we have joint emergency savings of c£6k currently).

Hopefully in that year the rates will start to increase so although my first fixed rate will start to look a bit low it's not too bad as it's not all my money (plus then only two more years of it) and the next lot can be at a higher rate.

I also have c£40k in a s&s ISA which is where new money goes now as I have enough cash (earning sod all).

Cash savings rates whether in an Isa or out, are extremely poor at the moment. You ought to consider investing in a stocks and shares isa to experience better gains. Most s&s isa providers multiple transfers and you can opt for a risk adverse fund spread. You can currently invest up to £15,240 of fresh funds this tax year. Unless you already plan on investing this you should feel comfortable encashing one isa while transferring the other. Also cash ISAs are all but dead since the governments new legislation. The first £1,000 of interest gained in a tax year is now tax free. Essentially you need to have pretty large pots saved in cash before a cash isa becomes of use now.

It's only £500 if you're a higher rate tax payer.
I agree, it has meant cash ISAs are less useful but they still often have better rates with fewer conditions.

I don't think people should be advised to "encash" an ISA as then you lose the tax free status for that year and if you put it in another it would then count as that years allowance.
But you can transferred from a cash ISA to a S&S ISA, the process is usually pretty simple, I've done it twice.
I quite like putting the money in cash first and then transferring it over, somehow it's easier. But that may be due to my providers more than anything.

Are you a tax payer?

If you are not, some current accounts offer considerably higher rates of interest right now than ISAs. You will lose your tax free savings allowance, but if the total you have saved isn't much more than the annual allowance, then this might not matter so much. Be careful to read the T&Cs of accounts, as you have to 'pay in' a certain amount each month to get the interest rate, and some mandate a certain number of direct debits too. (However, you can meet these if you set up bank transfers: I 'wash' £500 through a Santander account- it goes in one day, and back to my current account the next, and I do a couple of charity commitments each month from it too).