What is the most flexible ISA for withdrawals?
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I have a number of ISAs with a mixture of Cash and Stocks & Shares accounts. I usually try to put as much as possible into them early in the tax year but I’m planning to buy a new car in autumn, so might need to withdraw £15,000 then. I should be able to save as much again by the time we get to the end of the tax year, so will be able to reinvest a similar amount. Should I hang on to that money and leave it in my bank deposit account, rather than put it in the ISA?
Matthew Hinchliffe of Smith & Pinching responds:
There are two aspects to my comments here. First, Flexible ISA rules allow you to invest in ISAs up to the annual ISA allowance of £20,000, take some out during the year, and then top it up to the allowance again – provided you do so within the same tax year. This means that if you make a withdrawal in autumn, you would need to pay that amount in again before 6 April 2022 for it to count towards your 2021/2022 ISA allowance. Once you pass the tax year-end, it counts as new money against your new year’s allowance.
However, in practice not every ISA will allow you to do this. If you choose a fixed term ISA – i.e. one where you have been given a preferential rate in return for agreeing to keep your money invested for a minimum period of time – you may well have to pay a penalty for accessing the money early and there may be no facility to top the ISA up again. Please check when you open your current year’s ISA that it allows flexible withdrawals.
The other point to consider is whether to hold your savings in a Cash or a Stocks & Shares ISA. While a Stocks & Shares ISA has the potential to see better growth over the long term than a Cash ISA, there is no guarantee that your investment will have grown in value by the time that you want to make a withdrawal, so you risk the possibility of losing money. For short-term savings of this nature, a Cash ISA may be the better option, but do shop around for the best deals offering flexible withdrawals.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk