Savings: cash ISA or high interest current account?

DAJA

Hi - not sure if this is daft questions (if it is i'm daft, so please help anyway). I have £5.5k in a cash ISA earning a miserable 1.75% interest. I have been sent a mailing for the A&L 6% current account which seems to be a lot more than I can get from other ISAs on the market. So is it sensible to transfer my money to a high interest current account or is ISA always best? thanks

Aegis

If you transfer out for a gimmick rate you lose the tax free benefits from previous years contribution forever. You might find that you're better off transferring your ISA to a better paying account. You can probably close to double your rate even now.

masonic

The answer partly depends on how much you think you will be saving in the next couple of years. It may make sense to take the money out given that it would only take 2 tax years to get it all back under the shelter of an ISA later on, but if during that time your savings increase significantly then you could end up in a position where ISA rates have risen but some of your money will be stuck in taxable accounts for some time.

Edit: Also, the rate for the A&L account only applies to the first £2500 (the rate for balances above that is 0.1%)

whitenoise19

Sorry to hijack the thread slightly, but just need to clarify something you mentioned Say you start an ISA and put in £3600 for a year. Half way through the next year you decide to move the money elsewhere. Forgetting interest you now have £5400. Obviously you can't take out another ISA for that year. When the third year comes around, I can set up an new ISA. The bit I'm confused with is can I put the whole £5400 into the ISA or just £3600?

People have mentioned that if you remove money from the isa it loses its tax-free status, but I have always thought, no big deal, just put the lump sum into a new isa next year. However if what I have said above is actually how it works, then this would make more sense! As if you had £18000 and removed it, then it would take 5 years to feed this amount back in? Can someone confirm if this correct?!

Baldur

whitenoise19 wrote: »

........if you had £18000 and removed it, then it would take 5 years to feed this amount back in? Can someone confirm if this correct?!

That's correct (at present Cash ISA rates) you can only subscribe the annual allowance in any given tax year, however much you may have previously held in a Cash ISA - that's why the last place from which you should remove savings is a Cash ISA.

whitenoise19

Right!! the penny has finally dropped! Thanks for that Baldur it clears up much confusion! :T When the debate about isa vs high % savings comes up (like this thread) I now get it when people say it depends on how long you want to save for. Man I'm so stupid!

Cheers again! :beer:

northwest1965

What about transferring your Isa? I had one with Barclays and transferred over to the Nat West

DAJA

Thanks everyone - interesting stuff (although actually more complicated than I originally thought, this seems to make sense). Cheers.