How Much Will I Lose If I Clear My Isa Now

mikeopvc

I'm applying for a credit card today but have been told to expect a wait of about 2 weeks, trouble is I'm desperate for the money now and the only funds I have access to are my easy ISA
£3,017.72 - Abbey

last resort is to ask mother-in-law for temp loan but trust me that eally is the last resort.

Can anyone tell me what I stand to lose in terms of interest if I withdraw now?
I also have contributions remaining of £3,600, if things work out in the next couple of months I'd probably be in the position to deposit £3,600 before the ISA deadline next year. So what would I gain if I could mangae to keep existing funds in and top up?

If it's not a great amount then I'll just get the credit card.

KingL

mikeopvc wrote: »

Can anyone tell me what I stand to lose in terms of interest if I withdraw now?

No they can't, you haven't provided enough info.

Are there any penalites for withdrawing funds from your isa. How often is interest calcualted and applied? When was it last applied? What interest rate do you get?

Generally it is a bad idea to withdraw funds from an ISA. You could leave your funds in there and be making tax-free interest on it for 5, 10 or 20 years. Once you take it out, you won't be able to put it back in again, ever.

(ofc, you can 3600 new funds each year, but you can never re-add the £3017.72)

try and get a loan from elsewhere...

mikeopvc

Easy ISA standard rates with interest paid annually Tier
Tax-free rate p.a. /AER
£27,000 plus
4.40%
£18,000 plus
4.00%
£12,000 plus
3.70%
£9,000 plus
3.60%
£6,000 plus
3.35%
£1 plus
3.10%

Rates may vary and are effective from 1st November 2008

It seems I would only get 3.10%
That doesn't seem a lot
Interest is once a year in march
No penalties for withdrawing

KingL

Assuming that interest is calcuated daily and applied annually, you will have made £66 on it since 1 March 08* and could potentially earn another ~£30 on it up to next March. You'll have to consult with your terms and conditions to see which bits of that you stand to lose if you withdraw now.

Again, the point with ISAs is that you could potentially be making £100-150 tax-free interest on it every year if you keep it there. Once you remove it you can never replace it.

Good luck in any case.


* assuming that you have had it open since then and that the quoted interest rates (from 1 Nov 08) also applied from March-Nov 08


.

mikeopvc

OK thanks,

What if I were to get funds elsewhere and top up the extra £3,600 in January. Giving a total of £6,617.72

KingL

Injecting another 3600 on Jan 1 would make the interest from now til March £46, rather than £30.

You could find better ISAs if you have a read around the other threads (including http://forums.moneysavingexpert.com/showthread.html?t=401374).

Milarky

What you 'lose' is the supposed interest differential between the ISA gross rate and the best net rate available on 3000-and-some pounds between now when you need to spend that money.

That's a 'piece of string' argument of course, so let's just use say '30 years' - being the average time an ISA could be held up to retirement - and that past retirement you should really drawing at least the interest as income.....

Well, at '3.10%' you aren't losing any interest as a basic rate taxpayer (4% is enough) or as a higher rate taxpayer (5.2%) either.

So a further assumption - you move the ISA to best available (say 2% extra)

Further assumption - you are a basic rate taxpayer - and the gross ISA rate is no more than 1% higher than the best taxable account net...

30 years on £3000 @ 1% pa = £4043

Further assumption - the best net rates are equal to 'inflation' therefore '+1%pa' is the 'real' value.

So, approximately you 'lose' one third (£1000) of the value of the amount you withdraw from an ISA

But putting that into context, if you don't use your ISA allowanace in full every year then the '£3000' can readily be replaced using the next available tax year. So the 'loss' only really applies to hardened ISA savers anyway. The actually loss is potnentially just 'one year' - or 1% at the end of the 30 years and therefore about 1% of '£4000' - or £40.... But again, only if you keep that ISA rate competitive for the next 29 years