I have £95,000 in my Coventry ISA. As I've exceeded the £85,000 Financial Services Compensation Scheme (FSCS) protection limit, should I take out £10,000 and put it in an ISA elsewhere together with this year's ISA allowance?
This is a really good question and you are in a situation that more and more people will find themselves, now that the cash ISA allowance has become so much more meaningful.
It’s good to hear of savers still taking advantage of their cash ISA allowance - the complex rules and the introduction of the Personal Savings Allowance have contributed to a slowdown in the popularity of this stalwart of the savings market. The good news is that the Office of Tax Simplification (OTS) is looking into ways that could make the rules simpler.
Although there are of course rules that need to be followed, it is possible to make a partial transfer from previous tax year cash ISA subscriptions, so it should be pretty straightforward to move £10,000, especially if the Coventry ISA you hold is an easy access account.
If it is a fixed rate ISA, you can still move the excess, but you will be charged a penalty on the amount you transfer.
Most cash ISAs these days will accept transfers in, but it’s vital to follow the transfer rules. Rather than taking £10,000 out of your ISA and then opening a new ISA account, you need to open the new cash ISA and complete a transfer form with that new provider, who will arrange the transfer on your behalf. If you cash in the £10,000 you will lose the tax-free status on the money withdrawn.
Whilst you would also be keen to deposit this year’s ISA allowance into the new cash ISA, it’s not normally essential – you should be able to open a cash ISA with just the transfer proceeds.
Of course, it makes sense to switch into another competitive cash ISA – as a whole, Coventry cash ISA rates are pretty competitive.
At the moment, easy access cash ISA rates are just as competitive as non ISA rates – and you could find that you are earning a bit more in the new account, than you are with Coventry, depending on who you choose. For example, Al Rayan Bank (Sharia compliant provider) is paying 1.35% tax free/AER on its Instant Access Cash ISA and Paragon Bank is paying 1.31% on its Limited Edition Easy Access (Issue 4) cash ISA. Both accept transfers in. Charter Savings Bank is paying a bit more on its 95 Day Notice Cash ISA – Issue 3, offering 1.40% tax free/AER.
Charter Savings Bank is also offering the best one and two year Fixed Rate ISAs, paying 1.52% and 1.69% tax free/AER, respectively.
Take a look at our Variable Rate and Fixed Rate cash ISA tables for more information.
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