What on earth are you supposed to do when a fixed-rate ISA ends?

[Liesmorelies]

Through inheritance I had £20k to invest 5 years ago - more money than I've ever had. Obviously interest rates were pants at the time so it was 1.5% and has now matured (or will next week), giving me approx £20 800. I want to reinvest most of it and thinking of stocks and shares ISA this time for maybe half of it, but I naively thought I could just have it in my bank account for a bit while I research this but it seems this is not allowed and I would have to pay tax? So I need to know exactly what I want to do before it ends. Also, what happens to the extra? Can I put that in my normal account as it takes me above the £20k? I have Googled and looked on my provider's page and come away more confused so any advice would be great.

You can transfer an isa into another isa (that accepts transfers in). You would complete the new banks form and they get it transferred for you.

You can currently add 20k to an isa each tax year. The interest can remain in the ISA.

Why do you want to remove the money?

You can transfer to a stocks and shares isa.

Interest is only paid if you earn more than £1000 in interest as a basic rate tax payer. £500 in interest as a higher rate tax payer. ISA money does not count towards that as the interest is tax free.

Directly transfer to another isa is really easy

stuff that you take out isn’t taxed then - you will only get tax on the interest it subsequently gains and then only if it’s substantial / or if you are a higher rate tax payer when then tax threadhold for interest is lower

Put it into another isa . There are some reasonable ones out there and they are not all 5 year ones if you think you will need the money before then .
Remember the isa allowance is going down to £12,000 if you are under 65 .

www.moneysavingexpert.com/savings/best-cash-isa/

In my experience, banks automatically transfer fixed term ISAs to 'normal' ISAs once they reach maturity.
Then, you can transfer it from there to another ISA (either stocks and shares or cash). So there's no need for you to rush the decision.
Also, since last year, you can you can own several ISAs, so you can split it however you want (some in fixed-term, some cash, some stocks,...)

Thank you - but I can't transfer the full amount can I?

Will I have to pay tax? I earn approx £70k so is there tax to pay? I thought that the point of an ISA was not to pay tax but only if you keep it in an ISA forever? I'm so confusded!

Open another ISA with say any small amount of money, when opening it asks you are you transferring in, you say yes, open account, then it should ask where you are transferring from, if it’s same bank, you click on that and you can transfer all of that £20,800 into the new account.

anything already in an isa is already protected as long as you transfer it in the right way. It isn't affected by the £20k cap
So you can move this into a better isa (as long as you do it the right way) and then add more for this current tax year (up to £20k)

yes you can transfer the whole amount but you need to use the transfer ISA option, not take the money out and manually do it yourself. Just find the ISA you want and select the ‘transfer ISA in’ option when opening it and fill in the forms.

Not for existing ISA transfers, 5 years is bonkers to lock up money for, when rates were at historical lows.

Only use a S&S if you can afford to have the money tied up for a several years and can stomach any loses.

The first £1,000 of interest is tax free and yes provided the time period has finished, by, give or take a couple of weeks, then you can transfer all of the money into the new account,

Jesus if you could afford to spare it for 5 yrs
S&s alllllll the way.

I wouldn't touch a cash isa unless I was 70 or needed it for shortish term for immediate liquidity

Transfer it
Theees no tax.
Look at MSE website its very good

Thank you so much all!

So fortunately I don't anticipate needing the money in the short term and in hindsight having in that account for 5 years wasn't great, but it's still £800 for nothing, so...

One last stupid question: In my head I've always thought I'll reinvest but maybe take out the interest so spend. I don't need to do that, it was more about treating myself and the dc. But now it seems I can't do that or I'll have to pay tax on it. Is that right? Because of child benefit I do self-assessment, so would it be something I'd have to declare next year or would it need paying before then?

She earn 70k so only £500 of interest is tax free.

You only pay tax on interest over £1000 in any one tax year. So no, you won’t pay tax on it if that’s the only interest you’ve earned.
I see someone has provided a link to Martin Lewis website which has great information about ISAs. Have a read of that. Find an ISA with a good interest rate, open it and transfer the money from your current ISA into that one. Don’t withdraw the money from the ISA first!

AH, just saw she earns more so the tax free bit is lower. OP, transfer the whole lot into a new ISA

Think of your ISA like a hotel. Currently the money is in one room, but its reservation is nearly finished.

While the money is in one of the hotel rooms, any interest or returns it makes is tax free.

At that point you can take it out of the hotel entirely or put into another room in the hotel.

There’s no tax if you take it out of the hotel (even if you just take the interest out of the hotel), but if you save/invest it somewhere else once you’ve taken it out of the hotel you will pay tax on the interest and returns it makes (subject to your £500 tax free allowance).

You don’t need to take it out of the hotel at when the reservations up. Most banks will move it to another hotel room for you, but one that pays a low interest rate. You can leave it there while you decide where to put it long term. You can find a better interest rate and move it there for a short amount of time (provided it’s an “easy access” ‘room’) while you decide where to put it long term.

At no point is there ever any tax on taking the money out of the hotel. The tax only comes if you make interest or a return on the money you have taken out.

There’s limits on how much you can “check in” to the hotel every year, but no limit on how much can be in the hotel in total.

If you take it out, you will need to make sure you have enough allowance to be able to put it back into the hotel if that’s where you want it to be in future.

Does that help?

The interest earned in an ISA is tax free, you can withdraw it without having to pay tax on it.

Definitely have a look at the MSE link and have a read up on ISAs it will really help to make sure you understand the key points about how they work.

It's a bit confusing to start with but once you get your head round it it's pretty straightforward.

Other useful resources for explaining: Meaningful Money will have some shortish YouTube videos about ISAs or Rebel Finance have a free course which is much longer and in depth about saving and investing.

If you take the £800 out of your ISA you do not pay tax on it at that point. If the £800 gains interest once outside the ISA that is taxable (depending on allowances etc this may never be an issue anyway as posters have explained above).

Thanks all - between the cake video from ML and the hotel analogy above I think I understand it better now. I'll have a look at some of those videos as well. As people pointed out, I see the current provider will move it to a standard ISA account thing from which it can be moved at any time so I do won't have to decide this over Christmas it seems, which is a relief!

You might want to spend some time on the ukpersonalfinance subreddit. You can do a lot better for your money than cash ISAs!

Op won't have to pay ANY tax on any amount of interest, it's an ISA, that's the whole point of them!

Think of it as being like an energy deal or mortgage, once you hit the end of your fixed rate term you find a new one. So look at other ISAs to see whose offering the best deal (I recommend looking on the money saving expert website for a quick breakdown), then apply for a new one. It's very important you transfer the money from your current ISA directly into the new one, don't withdraw it into any other account. They give you this option when setting up any new ISA. You just put in your current ISA details and they'll do the transferring.

You don't pay tax on interest from ISAs - that's the whole point of them.

You need to find out what the automatic maturity options are for your ISA. If you don't give an instruction of what to do with the maturing money, your provider will automatically do something - either transfer it into a easy-access ISA or renew it into another fixed-term ISA similar to the one that is maturing (and you don't want another 5-year ISA). That would have been stated in the original paperwork you had but will also be on the reminder that they send you before the maturity date.

I would suggest you transfer the money into an easy-access ISA (which will be a low rate of interest) or a limited-access ISA (which will have a slightly higher rate than an easy-access). A limited-access ISA allows you to withdraw money a maximum number of times a year, eg 3 or 4 times, which will be enough for you to decide what to do with the money and where to transfer it to.

You don't have to stay with the same provider - look around for better interest rates. And you really need to read up on how ISAs work.

Lastly, for future information, money in a fixed-term ISA can be accessed before the maturity date but there is a penalty to pay - an amount based on loss of interest for a certain duration. When locked into a low-rate account and interest rates rise, there's a point when it's worth taking the hit on the penalty and transferring the low interest ISA to a high interest ISA and ultimately earning more interest that if you'd stayed in the low-rate account. Basically, when interest rates were above 4%, you could have transferred your ISA into a better paying ISA and earned £800 a year instead of £300.

With the recent drop in interest rates, I expect ISA rates will be coming down as well.☹️

Being of advancing years, my OH and I have multiple cash ISA's (amongst other things).
We both had one mature a few weeks ago (5.25%) and transferred them straight across to new cash ISA's paying 4.2%.
My OH was also getting disenchanted with PB's so withdrew £40k and opened a cash ISA in each of our names (also 4.2% which is better than his PB winnings over the past 6-months).

But that's per year and OP has had this in for 5 years so has made very little per year. (I feel your pain OP we have a 5 year account that was put in when rates were very low too).

Anyway it's interest from an ISA and that's tax free anyway. Interest from an ISA does not count towards your personal savings allowance either.

OP you don't have to pay any tax whatever way you look at it. If you take it out of the ISA and put it in your normal account then it will stop being an ISA and you will use up your £20,000 allowance for this year if you decide to put it back in an ISA at a later date. That won't matter if you don't want to put any more than £20,000 in this year though. In your normal account I doubt that you'd make enough to have to pay tax on the interest as rates tend to be low and you can make £500 tax free in your bracket.

So your options are : transfer it straight into another ISA - you can transfer the whole amount no matter how much as long as it has come from an ISA account, you can also add up to 20 grand for this years allowance. Or you can put it all in your normal account while you decide what you want to do, you can spend some of it if you want but you probably won't earn enough interest to need to pay tax unless in a savings account - but if you decide to put it back in an ISA then you will only be able to put 20 grand is as that is the limit for the year.