It’s time to change your ISA!

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ISAMost people know that they cannot pay money into more than one Cash ISA at the same time. The same rule applies to a Stocks & Shares ISA.

The contribution rules can seem confusing.  It is best to think of Cash ISAs and Stocks & Shares ISAs as completely different animals.  One is a savings account, and one is an investment.

There are two similarities:

  • Both types of ISA give you tax free returns
  • The contribution rules are intertwined

ISA contributions made simple

This tax year the maximum you can invest in a Stocks & Shares ISA is £10,680 – less the amount you put into your Cash ISA. So for example, if you pay £3,000 into a Cash ISA this tax year, you can invest £7,680 in a Stocks and Shares ISA.

The maximum you can save in a Cash ISA is £5,340.

All change on 6 April

If you have either or both types of ISA, You may not be aware that when the new tax year starts, on 6 April 2012 you can stop your payments to your existing ISAs and start paying into an account with a new provider. You do not have to transfer your old ISA to the new one (unless of course you want to!).  You can have as many ISA accounts as you wish, as long as you are not actively paying into more than one of each type at the same time.

Why change your ISA next tax year?

  • If you have invested in a Stocks & Shares ISA, you may not want to continue investing with the same fund manager year after year. If you switch to a new company next tax year, it means that you are not putting all your eggs in one basket. One of the rules of sensible investment is to diversify your investments, because it reduces risk.  A good way of doing this is to invest with a different fund manager each tax year, and build up lots of different pots.
  • If you have money in a Cash ISA you may find that the rate is no longer the headline grabbing figure it once was; financial institutions often cut rates with savers being none the wiser.   If this is the case, you can stop your payments, and find a more competitive rate. You may like to consider transferring the whole ISA account to the new provider (although you can always do this further on down the line).
  • A final reason why you may wish to use a new Cash ISA Provider next year – to safeguard your money against the financial institution failing.  The maximum amount guaranteed for each customer is £85,000.  So if for example you bank with HSBC, and you have £60,000 in a deposit account, and £30,000 in Cash ISAs, you only have £85,000 of your £90,000 protected, even though they are in different types of account.

Henrietta Oxlade is an Independent Financial Planner with Radcliffe & Newlands and MyFamilyClub’s in-house finance sage! She has been advising individual clients since March 1988, which is why many of her clients consider her part of the family. If you want to contact Henrietta, email us on [email protected] and we’ll put you in touch.