ISAs

[Authenticity2020]

So, I have two ISAs. One opened circa 2017 with some money (no way near limit) and the other opened maybe 2019 and has literally £1. I don’t recall withdrawing from either account.

I have today opened a new ISA account and was about to transfer both into this new one as rate is slightly better, but only as it turns out by 0.5%

What is best to do? Transfer all into new one and close the two old ones or should these existing ones be left and put new funds into this? I am hoping I can actually save and exceed the the ISA limits this year, so would I put money across all three accounts (is that allowed) or, just the new one? Do I keep the old accounts open?

Bit confused. Thanks for any advice.

You can only contribute £20,000 to an ISA each year. The amount re-sets each April. You can contribute to stocks and shares ISAs plus cash ISAs to a total amount of £20,000 (not £20,000 each).

https://www.gov.uk/individual-savings-accounts/how-isas-work

There used to be a rule you could only pay into one cash ISA and one stocks and shares ISA per year but that was changed. However, many banks only let you have one of each with them.

As long as you are under the £85,000 compensation limit, I can’t see any point in having more than one ISA but some people like to have ‘pots’ of savings for different things so that’s a personal choice.

Be aware that there is a strong suggestion the government are going to reduce the amount that can be paid into a cash ISA. It seems to have been comprehensively leaked and not outright denied so is at the very least being seriously considered.

Also make sure you transfer the ISA money not draw it out and pay it in again. If you do the latter, it counts as new and goes towards the £20,000. If you properly transfer it, you can add an additional £20,000 on top.

You can only put in up to £20000 of new money each tax year, however many ISAs you spread it across. If you can put the full 20k in this year then I wouldn't transfer the money from the other one, though you could look and see if there is a better rate ISA to transfer it to.

@CandidHedgehog @sparkellie Thank you for your replies. So, if I were to save £20,000 this year 2025, could I then transfer to another higher rate ISA next year and keep adding money to that pot to make it, potentially £40,000 plus interest on the full sum in 2026, say? Does the money saved in the ISA become taxed after its year of tax free exemption? Does that make sense?

It makes sense and no, at the moment, providing you don’t take it out, it stays tax free forever.

You can add a further £20,000 every tax year (starts early April). So yes, if you put the maximum in this year, you could have £40,000 next year. However, the amount doesn’t roll over - if you don’t put the full £20,000 in this year, you can still only put £20,000 in next year.

If you do transfer it to another ISA, you must follow the official transfer rules. If you draw the money out, even if you put it straight back into another ISA, it counts as a new £20,000.

All this is the position at the moment. There are leaks about the £20,000 limit changing but not the fact that once in, the money is always tax free.

There is currently no upper limit to the amount that can be in an ISA.

@CandidHedgehog Thank you for taking the time to share your expertise, I am grateful and reassured!