Potentially a v stupid question about ISA

[Auntieobem]

So, If you have £20k in a 1 year fixed term ISA at the end of the year what happens? If you put that £20k into a new ISA I assume that uses up £20k of your annual allowance? Are you better having a 5 year ISA so you can invest a "new" 20k the next year? So you'd have £40k in an ISA???

fixed term ISAs often convert into instant access ones at a much worse rate but you would need to check the terms of yours to be certain.

you can transfer previous years allowances into new ISAs as long as you follow the correct route. If you were just going to move the money into another account via your online banking this can cause issues

So in theory you could leave the £20k in an instant ISA and open a new one with that year's allowance?

You could transfer the original 20k out of the fixed term ISA (usually once the term ends, it will be earning much less interest in a standard variable rate ISA account).

You could then add an additional 20k into the new ISA, to make the total held 40k (plus the interest from the first year, assuming it was added to the account and not paid out separately).

You can pay in 20k each year into an ISA.

Yes, you could do that if you want to. But remember that you wouldn't be able to to pay any more into the original ISA once you have paid 20k into the other one.

You could do but it is unlikely you will get the best interest rate

ISA allowance is 20k per tax year - from April till April but you can only open 1 ISA (instant or fixed) across banking sector per tax year
you could put 20k into instant access today and then top up next 20k in April 2024
or you could put 20k into 1 year fixed ISA (they traditionally offer better rates than instant access) today but then will be able to top it up after its maturity next year in 2025
Money from previous tax year are considered historic and you can transfer them into a new one without affecting your 20k allowance per tax year.
e.g. You have 45k in 5year fixed ISA that matured today. Tomorrow you can open a new ISA (instant or fixed) and transfer both your historic 45k and fresh 20k of this tax year.
hope it makes sense

My understanding is that you can transfer an old ISA to a new ISA and that doesn't affect your £20k allowance of new funds to pay in.
It has to be an offical ISA transfer that is done between the financial institutions.

Thank you, explanations about historic ISA money is v useful.

Make sure you shop around, interest rates have been quite pleasant in 2023 and are starting to only slightly go down. Some providers offer boutique ISAs which combine features of fixed and instant and offer decent interest rates. If you decide to amalgamate historic ISA with new then it’s always the recipient provider (of new ISA) who instigates the transfer.

If you've opened a 1 year or otherwise limited term ISA, the bank or building society that you've chosen to put it in should send you a reminder before the end of term, but you can put it in a calendar which pops up with the reminder, or before Christmas in your paper diary to give you a few weeks to think about it - xyz BS ISA ends * January 2024 - look at rates. Then you can you can look the best rate for an ISA which accepts transfers, and then ask the organisations involved to arrange it. So long as you use the transfer process - look on the website for details or ask your provider when the time comes nearer, this won't affect your limit for ISA subscriptions or your ability to choose the best one the next financial year, 2024/25, starting in April this year.

The best way to think of ISAs is as a "wrapper" or "category" of account. You can move money around from one ISA to another without it being considered ADDING money to the overall "ISA category" which means it won't affect your allowance. As an example:
You put £20k into a one year fixed term ISA in tax year one.
In tax year two, it matures and converts to an instant access ISA, with a worse interest rate.
You move that £20k into a new fixed term ISA or any other kind of ISA with a better interest rate.
So far, you've not used up any of your £20k ISA allowance for tax year two, because you've just shuffled money within the ISA category.
So you can add another £20k to any ISA product/s within tax year two.
Rinse and repeat.

BUTTTTT

You have to follow the correct procedures to move the money from one ISA to another - you can't just withdraw it and then put it somewhere else. It has to flow along special ISA pipes, so to speak, or it will count towards your allowance when you pay it back into a different ISA product. Your respective financial providers/banks etc will arrange this so you need to contact them and follow their instructions.

I have money in a Lloyds fixed rate cash isa which matures this August. I have today opened a fixed rate cash Isa with Aldermore. My question is what to do when the Isa in August matures as I've been told this can't be transferred into Aldermore as its fixed. TIA

@PlumBird - when the ISA matures in August, just transfer it to another ISA.

Lloyds will contact you before the maturity date with options. It might automatically become an easy access ISA (the original T&C's will tell you this) or they might offer to roll it into another fixed term ISA.

If you do move the money to a different ISA provider, make sure you transfer it and don't withdraw the money, otherwise it loses its ISA status.

You can apply for a new ISA a couple of weeks before the August one matures - on the transfer form there will be an option to choose for the money to be transferred when it matures. So the new company opens the ISA and Lloyds will transfer the funds on the maturity date.

The “one ISA per year of same type” rule has changed from 6th April (multiple cash and S&S ISAs are now allowed).

But not all providers have taken on the new rules.

https://moneyweek.com/personal-finance/savings/isas/multiple-isa-rule-how-it-works#:~:text=As%20we%20enter%20the%202024,ISAs%20of%20the%20same%20type.