General Questions About Cash ISAs

themissingelf

Hi All...

Had a quick scan of previous threads and the main site but could not find a definitive answer to my questions. Grateful for any help and advice...

Q1
If I pay £5100 (i.e. the max) in to an ISA is the interest still paid in to the same account (effectively exceeding the total investment for the year)?

Q2
If I have an ISA from 2-3 years ago, can I still pay in to that ISA whilst opening and paying in to a new one for this year? (I seem to recall something about not being able to pay in to more than on ISA at a time).

Many thanks

Lokolo_2

themissingelf wrote: »

Q1
If I pay £5100 (i.e. the max) in to an ISA is the interest still paid in to the same account (effectively exceeding the total investment for the year)?

That depends on the account itself, some will pay interest to a nominated account but the best ones will add it to your ISA. Interest does NOT count towards your annual ISA allowance so you are perfectly within your right to put £5100 into a cash ISA.

themissingelf wrote: »

Q2
If I have an ISA from 2-3 years ago, can I still pay in to that ISA whilst opening and paying in to a new one for this year? (I seem to recall something about not being able to pay in to more than on ISA at a time).

Many thanks

No, you can only CONTRIBUTE to one Cash ISA per tax year, BUT you can transfer any Cash ISA's from previous years to a provider offering a better rate of interest.

cheerfulcat

Q1 - yes, interest is paid into the ISA. The limit is only on your original contribution.

Q2 - No, you can have only one " active " ISA ( that is, one into which you are making payments ).

themissingelf

Marvellous - many thanks for your swift replies!

themissingelf

Another quick question... I take it interest paid monthly is better than annually because I earn interest on my interest?

Or.........

Do I just need to look for interest calculated daily etc to earn interest on the interest even though it is not actually added to the account?

Thanks again...

lisyloo

You need to look at and compare the AER (annual equivalent rate).
If an account is paid monthly then you are correct it will be compounded but that doesn't necessarily mean you will get more.
So if for example you had a 3% AER, then you would get slightly less than 3%/12 each month as the compounding will make it up to 3%.
Easiest just to look at AER.

Lokolo_2

Yep Lisyloo is correct, providers offering monthly interest often pay a smaller gross percentage than annual interest to make up the difference of compounding interest, so often it doesn't make a difference.