Opened a cash ISA last tax year - what to do this year?

fatbunneh

Hello,

In mid-March of this year, I opened a cash e-ISA with Santander, and used the full allowance. I currently have about £11k in my current account and am considering whether to open a new ISA with a different bank, or put this year's allowance in the same ISA.

My question is - is this a good idea? I'm wondering what I'll end up doing at the end of this tax year when the ISA's interest rate drops. I won't be able to transfer the whole £10k so, will I probably have to transfer half into a new ISA, and then just withdraw the other half back into my regular current account?

Also, how often is the interest added? Is it just at the end of the year? I've just checked my online statement, and it's still at the initial amount.

Sorry, I'm a total newbie when it comes to savings! Any help is very much appreciated.

dzug1

fatbunneh wrote: »

. I won't be able to transfer the whole £10k so,

Also, how often is the interest added? Is it just at the end of the year? I've just checked my online statement, and it's still at the initial amount.

Sorry, I'm a total newbie when it comes to savings! Any help is very much appreciated.

Why won't you be able to transfer the whole £10K? The rules allow it. Transfers don't count towards the limits.

As to when interest is paid - it varies. Sometimes it's monthly, sometimes on the anniversary of opening, occasionally at other times. Depends on what you signed up to.

fatbunneh

Oh - I did *not* know that transfers didn't count! Thanks for that. That seems kinda obvious now...duh.

Okay, I'll probably go ahead and put more cash into the same ISA then! Thanks again.

desm52

Check what interest the old ISA is paying. It will drop dramatically after it is 12 months old. Generally its best to transfer to a new one to get the best interest you can, then repeat in 12 months time.

dtsazza

A note on interest as well, as this can catch people out: while interest may be paid monthly or yearly, it is calculated (and accrued) daily.

What this means in practice is that you don't need to wait until just after an "interest payday" to get the most out of your account if you want to close it/transfer the balance. If your interest is added yearly and you transfer out after 6 months, then the accrued interest is added to the account before it's closed, and therefore transfers over. (To give specific figures, if you had £5,000 in a 3% ISA you'd be expecting £150 interest a year. If you transfer it to another provider after half a year, the new account will receive £5,075 and you won't have missed out on any interest).


In practice, since ISAs tend to be long-term investments it seems to be more common to have the interest added yearly - less hassle for the bank, and possibly avoids queries from customers who have forgotten about compounding thinking they're slightly underpaid. The bottom line is that it really doesn't matter in almost all situations.