Moneytalk – ISA questions - September 2020 |

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 28/09/2020

Moneytalk is our new series of reader questions about personal finance. This time we focus on a couple of ISA questions we have received recently.


What happens to my ISA wrapper if a bank fails?

I have several cash ISAs held in mainstream banks. I am looking to get a better rate by going to the so-called challenger banks. I am aware that most if not all are members of the FSCS. What no one can tell me is that if one of these banks fails clearly the cash is protected but what happens to the ISA ' wrapper '. I have tried the FSCS but got no answer/help thanks in anticipation.

Michelle Monck, Finance Expert responds:
The guidance issued by HMRC to those managing ISAs in banks and building societies states that if a cash ISA provider is declared bust by the Financial Conduct Authority (FCA) or the Financial Services Compensation Scheme (FSCS) the account holder may make a single subscription outside of the annual ISA limits to retain their tax-free status. This can be into a cash ISA, stocks and shares ISA, innovative finance ISA or Lifetime ISA (subject to LISA eligibility rules). The rules for only having one of each type of ISA per tax year still applies. The maximum amount that can be transferred is the balance including accrued interest held in the account immediately before the default.

You can read more in our guide to the FSCS and compare ISA rates here.


Will I lose interest if I transfer my Junior ISA?

I'm 16 and I want to change my provider for my Junior ISA but I am apprehensive because I don't know whether the interest accumulated this year from my current Junior ISA will be carried over into my new one and I would like to know whether the interest I have accumulated this year will just be lost or whether it will be added to my new Junior ISA when they pay out next year.

Michelle Monck, Finance Expert responds:

If you transfer your Junior ISA, your current provider will add interest already accrued to the account at the point of closure, so your new provider will receive a lump sum from them, which includes the interest amount. You will not lose interest, but if you have a fixed rate ISA, you may be subject to an interest penalty if you transfer. Please read the terms of the account before making a decision.

You can find out more in our guide to Junior ISAs.




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