With exactly one month to go until the end of the tax-year when savers will lose their tax-free allowance if they don't use it by 5 April, MoneySavingExpert.com explains how you can split your cash between easy-access and fixed cash ISAs.
As the ISA allowance has increased year-on-year – the biggest jump saw the allowance rise from £5,940 to £15,000 last July and it's set to rise to £15,240 from 6 April – cash savers have an increasingly bigger decision to make:
- To save cash in an easy-access ISA but risk earning less than if you could afford to fix it.
- Or to save cash in a fixed-rate account but sacrifice having no access to your money.
However savers with Aldermore Building Society, Kent Reliance, Marks & Spencer Bank, Nationwide, Newcastle Building Society, and from last month the Post Office, don't have to make this choice as the providers allow you to split your annual ISA allowance into both a fixed ISA and an easy-access one.
This isn't the best way to earn the most interest on your money – see our Top Cash ISAs guide for the best buys – but if you need easy-access and want to earn the most for your cash, by using this loophole you can open two ISAs in the same tax year, all for new money, as long as it's with the same provider.
So how do the split deals compare?
Here's how the split cash ISA deals compare with each other and the top rates on the market:
|Easy-access ISA||One-year fix||Two-year fix||Three-year fix|
|Aldermore BS||1.25% (i)||1.5%||1.85%||2%|
|Marks & Spencer||1.3%||1.4%||1.5%||1.6%|
|Post Office||1.5% (ii)||1.55%||1.95%||2.1%|
|Highest payer on the market||1.5% (ii) with Post office||1.65% with United Bank UK||1.95% with Post Office||2.3% (iii) with State Bank of India|
|This table features the highest-paying deals open to anyone. Some providers may offer even higher rates to their current account customers. See our Top Cash ISAs guide for the best buys. (i) This account requires 30 days' notice to withdraw cash. (ii) Includes a bonus of 0.85% for 12mths. (iii) Term is 1,000 days.|
As you can see from the table the top pick for a split ISA is from Post Office, which lets you open its market-leading 1.5% easy-access ISA as well as its fixed ISAs at 1.55%- 2.1% for one to three year fixes. It's two year fix at 1.95% is also market leading.
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Once open, the Post Office's easy-access and fixed ISAs allow you to transfer in old ISAs too. Read our ISA Transfers guide for more on this and how to do it.
Is splitting cash legal?
Under ISA rules savers are technically only allowed to deposit their annual cash ISA allowance into one cash ISA each tax year – read our ISA Allowance guide for the full rules.
But HM Revenue & Customs (HMRC) confirms that as long as you split your allowance of £15,000 into ISAs with the same provider, splitting cash at one of these six providers – which are the only major UK providers to allow this – will count as depositing new money into one single cash ISA.
If you open an ISA with any other provider, you can only put money into one ISA, in that tax year.
Should I split my ISA cash?
MoneySavingExpert.com's senior money writer, Helen Saxon, says: "If you know you don't need easy access to your cash, consider fixing your money as this is the only way to get the top rates, although bear in mind that some providers only allow one deposit at the time of opening, so if you don't max out your allowance you'll have to wait until 6 April to deposit more cash into a new ISA.
"Also be aware that if rates go up on other products but you've fixed, you're stuck as you're locked in for the term of the deal. The only way to get out of a fix is usually to forfeit some of your interest.
"But if you want the higher rate of a fix and think you may need instant access to some of your money, you should consider splitting your cash between Post Office's easy-access ISA at 1.5%, while also locking away some money in its two-year or three-year fix at 1.95% and 2.10% respectively.
"If you want to deposit cash all year round, you're also better off opening both a fixed ISA for a lump sum deposit and an easy-access ISA, which you can deposit in all year round."
How do I open multiple ISAs and split my allowance?If you want to open multiple cash ISAs with the same provider, the process is no different from opening one cash ISA for new money.
You just need to open the accounts via the normal channels and deposit the cash. It's the ISA provider that will let HMRC know you've split your new money allowance between its various products.
What about old ISAs I want to transfer?
Under existing ISA rules you can still transfer your old cash ISAs to another provider. If you've already paid into an ISA this tax year, you can transfer all of it to another provider, and continue to pay in to the new one.
If I can get 5% in a current account, is it worth putting money in an ISA?
While cash ISAs easily beat top normal savings, some bank accounts offer up to 5% savings as loss-leaders – see our Best Bank Accounts guide for the top deals. So even after tax, they beat the top cash ISAs.
But it's not as straightforward as this as you also need to take into consideration the tax-free status of ISAs. You need to weigh up what's more important to you – higher interest rates now, or building up cash that stays tax-free year after year. Martin's Santander 123 v cash ISA analysis explains all.