Take advantage of flexible Isas
Ruth Jackson explains why it’s worth taking advantage of the flexibility these products offer.
A flexible individual savings account (Isa) allows you to take money out of your Isa and put it back in within the same tax year, all without reducing your Isa allowance. Although the rules are a bit complex, it's worth taking advantage of the flexibility these products offer.
Say you have £10,000 in your Isa all deposited this tax year. You would still have £10,000 left over from your 2016/2017 £20,000 Isa allowance. If you withdraw £5,000 from a flexible Isa, you would still be able to deposit £15,000 over the rest of the tax year that factors in the £5,000 you withdrew, plus your remaining £10,000 Isa allowance.
This differs from a normal Isa, where your allowance is only affected by deposits, not withdrawals. In this type of account, if you deposit £10,000, then withdraw £5,000, you would still only have £10,000 left from your annual Isa allowance.
If you have a flexible Isa that only has money in it from previous tax years, you can withdraw cash and replace it (in the same tax year) without contributing to the current year's allowance. However, note that you can't put back in more than you took out, even if you didn't use up previous years' allowances.
The situation gets a bit more complicated if you have an account that contains deposits from both previous tax years and the current tax year. In this scenario, a withdrawal is counted towards your current year's allowance. If you withdraw more than you have deposited in this tax year, then the remainder of the withdrawal amount counts towards previous years' allowances.
When you pay money in, after a withdrawal, it is first counted towards replenishing previous years, and then, once that's used up, against this year's allowance. The key thing to remember when withdrawing and putting back cash is that both transactions must take place in the same year for the flexible Isa rules to apply.
The best choices for cash and investment Isas
Although Isa providers aren't obliged to offer flexible products, there are a lot of options available. Many banks and building societies offer flexibility on their cash Isas, although usually this only applies to variable rate accounts. The best interest rate currently available on a flexible cash Isa is 1.15% from Coventry Building Society on its 30-day notice account. If you want instant access and flexibility, then Coventry Building Society is still your best bet, with a rate of 1.05% on its instant-access Isa.
Newcastle Building Society offers a two-year fixed-rate flexible Isa that pays 1.25%, but note that withdrawals are subject to a 120-day loss of interest. Newcastle also offers a "Custom Isa", which acts as an Isa wrapper on several different accounts, allowing you to move your money between Isas and open different types of Isa fixed and instant-access in the same tax year.
If you're looking for a flexible investment Isa, The Share Centre, Charles Stanley and Barclays all offer products. Flexible rules apply to cash held in an investment Isa, but not to other assets such as equities or bonds. Rules also apply to dividends paid from an investment Isa if you have your dividends paid into a separate bank account, you can pay these back into a flexible Isa without it affecting your Isa allowance.
Finally, you can also open a flexible peer-to-peer lending Isa. For example, Zopa's flexible innovative finance Isa (IFIsa) advertises annual returns of up to 4.5%, depending on your level of risk. Just remember that with P2P, there's always the risk you won't get any of your cash back. And keep in mind that IFIsas aren't covered by the Financial Services Compensation Scheme.
In the news this week
Car ownership increasingly makes little sense, says Anna Mikhailova in the Sunday Times, particularly if you're young or live in a city. The average annual running cost for a driver aged 17-22 is £2,861, while car-sharing schemes are likely to cost a fraction of that. Better still, there are no reams of paperwork to fill in: you can hire a car "at the tap of a smartphone screen".
Zipcar, the best-known service, even allows users to pick up a car in one part of London and drop it off in another. Most car clubs charge an annual membership of around £100 and then charge around £3.50 to £7 per hour for a car, depending on where you live. BlaBlaCar is a carpooling service (a bit like hitchhiking online, although for security drivers provide member profiles and have user ratings), while HiyaCar and easyCar Club allow owners to rent their vehicles to neighbours.
Banks such as Santander and NatWest and online brokers including Habito and Trussle are "making strides" in bringing the mortgage application process "to the screen", says James Pickford in the Financial Times. Santander already allows clients to go "execution-only" (ie, no advice) and extended its digital mortgage processes to the self-employed last weekend.
But although the advantages of digital mortgages are clear, there are "reasons to be cautious". The "nirvana of a friction-free mortgage app" could cause borrowers inadvertently to "spurn advice they need". And importantly, "a decision taken on a smartphone for an advice-free mortgage will leave the borrower with no redress if it turns out to be unsuitable".
Investors wishing to switch online brokers may find that they are stung with hefty "exit fees" or, "bizarrely", are given an incentive to cash in their holdings before moving, cautions The Daily Telegraph. A J Bell, for example, charges £75 plus VAT per Sipp transferred and an additional £25 per stock owned.
"Rare finds" platforms that charge nothing for Isa or Sipp transfers include Fidelity Personal Investing and TD Direct Investing. If your platform's exit fees look alarming, "try haggling". It's amazing how effective threatening to leave can be.