The golden rule...?

welshguy_456

Just been reading the ISA guide on here and it says the golden rule is to never ever ever withdraw cash from a cash isa otherwise you lose the tax benefits.

I understand if you take the money out and plonked it into a normal account the cash would get taxed but if i just wanted it out to spend ie after hitting a target doesn't it really matter then?

Otherwise wouldnt we all just be moving money around and around therefore never actually getting any use out of the interest? I think i may have just answered my own question but i am so unsure. Guessing if you take it out to spend thats ok, if you take it out and do nothing with it we are just going to be taxed as usual? Any help much appreciated!
chris

Baldur

The tax-free status of interest earned within a Cash ISA 'wrapper' is ongoing (at least for as long as the scheme lasts), so many of us who have had Cash ISAs since the scheme started in 1999, and their predecessor, the TESSA, probably have well in excess of £50,000 earning tax-free interest.

Cash ISAs are best viewed as long-term savings vehicles, with the interest continuing to accrue wih no tax liability year after year.

welshguy_456

so what about short term saving vehicles? What is the best in this instance? Are you all taking out new isa's every year, filling it up to the 3,600 max and transfering a massive lump sum to another provider if they are offering better rates than your current providers?

Thanks for the reply

dunstonh

Cash ISAs are best viewed as long-term savings vehicles, with the interest continuing to accrue wih no tax liability year after year.

We consider them short term savings vehicles. Not long term. Good for your rainy day and cash allocation but not very good for long term money.

jimbow25

welshguy_456 wrote: »

I understand if you take the money out and plonked it into a normal account the cash would get taxed but if i just wanted it out to spend ie after hitting a target doesn't it really matter then?
chris

Yes you're correct, of course.

All the warning means is that a straightforward withdrawl means you won't earn tax free interest on it anymore, you have to go through a formal bank-initiated transfer from one ISA provider to the other.

If you want to spend the money and you don't mind it losing the tax free interest it might have got in the future, just take it out and spend it.

Of course if you'e got 1k in an ISA and 1k somewhere else it'd be better to leave the ISA money alone and spend the other money but you probably know that.

Lokolo

To be fair the whole longterm vs shorterm is dependant on what you are saving for (and thus how much).

I aim to save £100k in the next 8 years. I wouldn't put them into investments because I cannot risk having less than the £100k.

However I have a seperate investment account which I am to have £10k in the next 3-4 years which I will keep for 15 years.

Baldur

dunstonh wrote: »

We consider them short term savings vehicles. Not long term. Good for your rainy day and cash allocation but not very good for long term money.

The long term/short term debate probably depends on your age, risk levels and many other factors (as well as your definition of 'long term' & 'short term').

Personally, I have other forms of investment/savings but see Cash ISAs as a low risk, tax-free home for a portion of my cash savings allocation as opposed most of the available alternatives of which I am aware.

Other savings products meet my short term rainy day/goal-oriented cash savings needs, such as instant access savings/term deposits, etc., while permitting the Cash ISA interest to continue compounding.