ISA Interest

photograferry

Hi
I have a tax haven cash ISA with Barclays which is currently paying around 2% at the moment, i would like to open a Monthly Savings account with Barclays with a fixed rate of 6% for 1 year. I know it will be taxed but it's still a better deal than i'm currently getting. What i would like to know is if i transfer the money from my ISA into the savings account will i lose the interest i've earned in the ISA?
Thanks
Martyn

Myrmidon_J

Hi,

I would first point out that although the interest rate currently payable (in your ISA) is somewhat low, interest is tax-free for as long as you hold the ISA. If you transfer out, you lose "tax-free" status on that money forever.

I think ISAs should be considered long-term savings for this reason.

I would also point out that regular savers generally have a maximum monthly investment - say, £250. Thus, if you withdraw £3,600 and use this to "save regularly", you will not earn 6% on the full amount.

In answer to your question: it depends on the T&Cs of the ISA. Some only pay 'bonus' interest if there are no withdrawals made, but you should receive the 'underlying' interest on your money. However, most ISAs pay interest annually - so if you paid in £1,000, you'd only be able to withdraw £1,000, until the interest is credited to your account at a later date.

Baldur

Myrmidon_J wrote: »

However, most ISAs pay interest annually - so if you paid in £1,000, you'd only be able to withdraw £1,000, until the interest is credited to your account at a later date.

If an account is closed or transferred to a new provider, the interest is normally added up to the date of closure, whether interest is normally paid annually or monthly.

photograferry

Thanks for that
I currently have only about 1700 in the ISA i didn't open it up that long ago, the interest is payed monthly so i'm assuming that i can transfer it all including interest. But I take your point about the long term aspect of it. I see what you mean about the monthly limit, yes there is a 250 maximum amount per month, I didn't think about that.
Thanks for the advice

Baldur

photograferry wrote: »

Thanks for that
I currently have only about 1700 in the ISA i didn't open it up that long ago, the interest is payed monthly so i'm assuming that i can transfer it all including interest.

As I posted above, for Cash ISA transfers the whole balance of the account (including interest earned to the date of transfer) is transferred to the new provider, whether interest is paid monthly or annually.

Remember that the new provider must arrange the transfer, not you - you merely complete the new provider's transfer form.

Myrmidon_J

As I posted above, for Cash ISA transfers the whole balance of the account (including interest earned to the date of transfer) is transferred to the new provider, whether interest is paid monthly or annually.

But are you talking about ISA transfers to other ISAs, or withdrawal to a non-ISA account?

Abbey - who are notoriously "rubbish", it must be said - couldn't transfer my ISA (plus interest, etc.) to my current account (with themselves!). This, in part, is what I based my reply on...

Besides which, the OP was talking about a regular saver, and you certainly can't transfer £1,700 into one of those!

Baldur

Myrmidon_J wrote: »

But are you talking about ISA transfers to other ISAs, or withdrawal to a non-ISA account?

From my post "Cash ISA transfers" - taking money from an ISA and depositing it in a non-ISA account is not a Cash ISA transfer. As soon as any funds leave the ISA tax 'wrapper', it's simply money.

Abbey - who are notoriously "rubbish", it must be said - couldn't transfer my ISA (plus interest, etc.) to my current account (with themselves!). This, in part, is what I based my reply on...

As above - ISA transfers are specific processes defined by HMRC, nothing to do with the simple act of 'transferring' money.

<Edit> I transferred in excess of £35k of ISA funds from Abbey to two other ISA providers in early 2008 - both tranches of transferred funds included interest up to the date of transfer.

Besides which, the OP was talking about a regular saver, and you certainly can't transfer £1,700 into one of those!

As the OP acknowledged in post #4 "But I take your point about the long term aspect of it. I see what you mean about the monthly limit, yes there is a 250 maximum amount per month, I didn't think about that."

Myrmidon_J

Baldur wrote:

From my post "Cash ISA transfers"...

Ah, yes. Apologies. What does this have to do with the OP's question?

Baldur

Myrmidon_J wrote: »

Ah, yes. Apologies. What does this have to do with the OP's question?

You are again being 'hung up' on the word "transfer", my original respose to the OP's question was "If an account is closed or transferred to a new provider", which is highly relevant - if the ISA is closed and the funds are moved into a different account the interest would be paid at the time of closure by almost all institutions.