Confusion about ISA's..!

Pssst

I have some isa's with different providers. I dont really service them or top them up,they were bought and kind of put on the back shelf for the future.

Now then my OH came home with some confusing story she heard at work and which i think is totally wrong but here goes...

A friend of hers says she was told by someone at Alliance & Leicester that within an ISA .."you dont get interest on the interest.."

Does that mean anything and is there any truth in it..?

Apparently this friend was as confused as the rest of us as she mulled this priceless snippet of info for a while and decided to seek further clarification.

The output of her telephone call to A & L was that say you start an isa with £3000 in year 1. after a year you get tax free interest on that £3000. You then add another £3000. A further 12 months downline you only get interest on the additional £3k you added and not the total of £6k.

Does that make sense or is that rubbish too?

Ta

wishiwasarichgirl

pretty sure it's rubbish, you get interest on whatever is in there.

Oblivion

Pssst wrote: »

I have some isa's with different providers. I dont really service them or top them up,they were bought and kind of put on the back shelf for the future.

Now then my OH came home with some confusing story she heard at work and which i think is totally wrong but here goes...

A friend of hers says she was told by someone at Alliance & Leicester that within an ISA .."you dont get interest on the interest.."

Does that mean anything and is there any truth in it..?

Apparently this friend was as confused as the rest of us as she mulled this priceless snippet of info for a while and decided to seek further clarification.

The output of her telephone call to A & L was that say you start an isa with £3000 in year 1. after a year you get tax free interest on that £3000. You then add another £3000. A further 12 months downline you only get interest on the additional £3k you added and not the total of £6k.

Does that make sense or is that rubbish too?

Ta

Yes, that's total rubbish. An ISA earns interest on a daily basis, but it's usually only added to the statement at the end of the financial year 5th April. If, as in the case of most ISAs, your interest is being fed back into the ISA account, you will earn interest on interest i.e compound interest.

In year 2 and beyond, you are still earning interest on whatever accumulated balance from previous years is in your account.

Dave.

Paul_Herring

Pssst wrote: »

A friend of hers says she was told by someone at Alliance & Leicester that within an ISA .."you dont get interest on the interest.."

It wouldn't surprise me to find this was the case in some of A&L's rather substandard products, but in general it's total rubbish if you leave the interest in the ISA (naturally you won't get interest on that interest if you withdraw it, which is possibly what your source is confused about.)

Simplistic example - full contributions at the start of one year, interest stays at 6% and is put in with the ISA:
Start of year 0: £3600
Start of year 1: £3600 * 1.06 = £3,816
Start of year 2: £3816 * 1.06 = £4,044.96...

Does that mean anything and is there any truth in it..?

Possibly, but as noted above, it would require you to withdraw the interest instead of leaving it in the ISA.

The output of her telephone call to A & L was that say you start an isa with £3000 in year 1. after a year you get tax free interest on that £3000. You then add another £3000. A further 12 months downline you only get interest on the additional £3k you added and not the total of £6k.

Only if the interest is withdrawn. (Which normally wouldn't be the case if you're making a contribution the following year.)

Does that make sense or is that rubbish too?

Sounds like a confused customer talking to a somewhat non-clear, or themselves confused, A&L CS rep.