Don't understand ISAs

joeypesci

First time getting one last year with Nationwide. Their e-ISA. I was putting money in, then needed some, so took some out. It mentioned something about if I take it out I can't put that back in interest free or tax free? I didn't understand that.

But the main point I don't understand is I thought I was going to get some interest on that at the end of it's term, the money that is in the ISA currently. Got a letter saying the bonus expiry for the ISA is 30th June 2011. Looking at the ISA I still don't seem to have ever got interest on that ISA. So I'm totally confused how it all works.

AndyinLondon_2

An ISA works in a similar way to a normal savings account, except that the interest is tax free. Because of this, there is a limit to the maximum you can pay in each year (£5,340). It sounds like you've got an easy access ISA which means you can withdraw money whenever you want, but you can't then use that part of your allowance again.

Example: You put £1,000 in an ISA. This means you have £4,350 of your limit left to use. Your car breaks down so you withdraw £900 from your ISA towards the cost of a new one. Your limit is still £4,350 because you can't put the £900 back once you've withdrawn it.

Just like ay other account, some of the interest may be paid as a bonus and there may be conditons attached to that such as a minimum balance, no withdrawals etc. So, depending on the terms and conditions of your ISA you may lose the bonus because you've made a withdrawal. I would still expect you to get some interest though, but the interest payment date may be annual and the date might not be linked to the bonus period.

joeypesci

Ah OK, thanks.

AirlieBird

On e-ISAs Nationwide pay the interest, including bonus, on 31 August.

joeypesci

That prob explains it then. What does the letter mean "your e-ISA bonus expires on 30th June 2011"?

And when can I withdraw all the money and put it in another ISA? Apparently it mentions you have to do a transfer and can't just withdraw it and then stick it in another ISA?

DragonQ

If you want to keep earning interest on the money tax-free, you'll have to do a proper ISA transfer to an ISA with a better interest rate (all bank websites have forms for this, should be on their ISA pages). If you withdraw it by any other method (e.g. BACS/FP), you've basically wasted your tax-free allowance for all previous years because you can't put the money back.

jamesd

You could withdraw it and pay it into another cash ISA. The money being deposited again would count as new money against your annual cash ISA subscription limit so it might not be possible to pay all of it into another ISA.

Put in £1,000, take out £1,020 including interest, pay into another cash ISA, no problem, just £2,010 of the annual cash ISA limit used.

Put in £5,340, take out £5,500, can't pay into another cash ISA because you have already used your full cash ISA allowance.

HMRC will accept one accidental cash ISA self-transfer by withdrawing and redepositing provided you withdraw all of the money from the original account and close it. You can then redeposit up to the annual limit into another cash ISA. The amount paid into the original one will not be counted a second time. This is HMRC being helpful, not something that you should deliberately do if you can avoid it. Use a transfer instead.

xrjtg

joeypesci wrote: »

What does the letter mean "your e-ISA bonus expires on 30th June 2011"?

They start paying interest at the lower rate, without the bonus, from the next day. This is a separate issue to when they actually credit the interest to your account.

You do an ISA transfer from Nationwide to Bank X by opening an account with Bank X, then filling in a form provided by Bank X asking them to arrange a transfer from Nationwide.

dtsazza

xrjtg wrote: »

They start paying interest at the lower rate, without the bonus, from the next day. This is a separate issue to when they actually credit the interest to your account.

It might be more accurate to say that your account starts accruing interest at the lower rate, to avoid confusion with when it actually gets paid.

(Again, this is not ISA-specific - a lot of "normal" savings accounts handle interest accrual and payment in the same way).