Scarborough BS 6% ISA option

OK, this is a higher rate paying ISA but is a 'regular saver' account, and has to be added one to month at a time. Over time however, the average balance builds up to and approaches the average balance on an ISA where you can put a year's entire subscription in on day one [i.e. one without restrictions on paying in]

Out of curiousity, just see what happens to the end-of-year balances on both kinds of ISA - one at 6% paying in £250 per month and one at 5% with £3000 paid in once a year at the beginning [Assume the regular saver is added to at the start of each month too]

End Of RS ISA [6%] Other ISA [5%]

Year 1 £3097.50 £3150.00

Year 2 £6380.85 £6457.50

Year 3 £9861.20 £9930.38

Year 4 £13550.37 £13576.89

Clearly the regular saver is going to overhaul the lower paying ISA soon after four years - and no account has been taken of the additional interest which could be garnered from drip feeding the money from a taxable savings product.

Even at 5% [4% after tax] that would be 4 years on £1375 - i.e. 16% of 1375 or about £220 [at 6% taxable, it would be £264]. So by the end of year 4 the regular saver would actually have nosed ahead by nearly £200. Is it worth it? I don't know - I leave that to others

Finally..
The observation being made here is that the effect of having to drip feed into an ISA becomes less and less significant [because annual subscription limits are fixed anyway] as the balances themselves build up. Thus you are able to access the 'differentially higher' rate better and better as time goes by.

In the case of the Scarborough there is a limit of £15,000 on this ISA option - and the account then has to revert to a lower rate product - but I suppose the canny investor could simply keep transferring [what is in effect] annual interest to a non Scarborough ISA to prevent this happening.