Implications of closing ISA early?

Discussion in 'Finance, Property, Law' started by Voltiguer, Mar 8, 2010.

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  1. Hi all,

    I'm thinking of closing a 6 month ISA bond a couple of months early due to unexpectedly needing the money, but just wanted to know what the implications of that is?

    Obviously there are the direct consequences that are stated in the contract, that of losing however longs interest, or a cash penalty.

    But what of the indirect? Does this go onto your credit rating, making it harder to get a mortgage or loan or such if you later needed one?

    Anyone got any experience or knowledge of this? Many thanks!
  2. Sympathetic_Reaction

    Sympathetic_Reaction LE Book Reviewer

    I'm not an IFA or similar, but it is purely a contractual decide to remove the cash early they penalise you with the relevant clauses in the contract - job jobbed. You haven't broken the contract, you have just followed the process to close the contract early and paid handsomely for the priviledge.


    p.s. i have a similar clause on my fixed term mortgage...again it's a clause in the contract so perfectly acceptable to invoke.
  3. Thats something along the lines of what I was thinking, that if it was unacceptable to close it early then why would they provide a mechanism for doing that, so it should be fine. But that also seemed a bit 'too good to be true'. Hopefully there are no hidden consequences then... Many thanks!
  4. Sympathetic_Reaction

    Sympathetic_Reaction LE Book Reviewer

    Basically they have to give you a get out clause...probably a legal requirement otherwise they probably wouldn't...but they can impose a penalty on that clause...I don't think it can be punative but can be set to a level which is representative of the loss they will see due to you closing early...i.e. lower interest rate or previous 120 days interest repaid...etc.

    I dropped my last fixed rate mortgage a year cost me £1,000ish in penalty (basically the interest they would have made had I stayed to the length of the fix) I was allowed to claim this back if I took out another mortgage with them within 1 year.

    Didn't affect my credit rating - checked it prior to taking current mortgage out.

  5. Wonderful, thankyou. I had asked at the building society whether there were any knock-on effects to any early closure and they had said no, but its good to hear that corroborated by someone else who's done similar.
  6. The contractural elements of the the original ISA will apply, usually loss of interest. Wanting your own money back is not reportable to the credit agencies.

    The other consequence is the £X thousands you had in that ISA from the relevant tax year are no longer in an ISA wrapper and cannot be put back. Any new ISA will be against the ISA tax allowance for the relevant input year.

    I am an IFA and generally I would not advise cashing in an ISA if you have an alternative. ISAs are a tax concession, so limited by HMRC and the rules are such that changing your mind mid-year is not ideal. If you are short of cash, then the loss of the ISA allowance is probably irrelevant, but bear this issue in mind.

    (Any financial advice is general and should not be relied upon - if you want specifics PM me: proper advice is at extra cost, but mate's rates may apply)
  7. Thanks for that, all done and dusted now quite an easy step to take actually. Obviously its not great losing your ISA allowance for the year, but there again a new one is just around the corner...
  8. I currently have a "Golden ISA" with Barclays which I would like to close as I want to buy some premium bonds.

    If I do this on the very last day of the financial year will I incur a penalty please?

    Although I will lose that portion of my allowance for the current tax year, what are the tax implications for the money withdrawn please?

    Will I still retain my full ISA allowance for future years?

    Any information would be greatly appreciated please. TIA.