How ISA interests are calculated on subsequent years?

movilogo

Let's assume max cash ISA allowance is £5000 every year.

Year 1: I open an ISA with £5000 at x% interest in Bank A
Year 2: I put another £5000 in my ISA in Bank A

Now, in year 2, shall I get interest on £5,000 only or £10,000?

Year 3: I open an ISA in Bank B with £5000 at y%

If I now transfer previous ISA of £10,000 from bank A to bank B, does the bank B will now provide me interest on £15,000?

McKneff

however much is in your ISa at the end of the tax year, this is what you get paid interest on, simple as that.

McKneff

The previous years will also have interest credited to them before the move so at the end of the tax year, you will recieve interest on what ever the balance is.

movilogo

So that means every year I should transfer my ISA to one which pays max interest?

McKneff

Yes, and do it as soon after the beginning of the tax year as you can.

But the new provider always has to do the transferring for you , dont forget.

CLAPTON

movilogo wrote: »

Let's assume max cash ISA allowance is £5000 every year.

Year 1: I open an ISA with £5000 at x% interest in Bank A
Year 2: I put another £5000 in my ISA in Bank A

Now, in year 2, shall I get interest on £5,000 only or £10,000?

Year 3: I open an ISA in Bank B with £5000 at y%

If I now transfer previous ISA of £10,000 from bank A to bank B, does the bank B will now provide me interest on £15,000?

at the end of year one you get interest of 5000 multiplied by x%

in year two assuming you haven't withdrawn the interest
you get interest on 5,000 * (1+x% )+ 5,000
i.e. (5000 * (1+x%) + 5000))* x%

in year three if you haven't withdrawn the interest then you get

interest of ( (5000 * (1+x%))+5000)*(1+x%) + 5000) * y%

or if you withdraw the interest every year then interest
of 15,000 * y%

thenudeone

McKneff wrote: »

however much is in your ISa at the end of the tax year, this is what you get paid interest on, simple as that.

Not true.

If you pay £5340 into your ISA on 30th March 2012 you will receive only a couple of pounds in interest (assuming interest is paid on 5th April 2012).
If you paid £5340 in on 7th April 2011 you will receive about £160 in interest (assuming 3% interest). Big difference.

Interest is calculated on the average balance of the ISA account over the period you had the account open. This is the same as saying you get interest 1/365th of the interest rate on the daily balance each day.

If you transfer an ISA, interest will be calculated up to the date of closure and added to the account immediately before it's transferred. You don't need to wait til the normal interest date to receive the interest.

MoneySaverLog

McKneff wrote: »

Yes, and do it as soon after the beginning of the tax year as you can.

The 6th April is looming, who is going to be the first Cash ISA provider, who allows transfers in, to offer me a 5 year Fixed Rate ISA for 5%

Svenena

McKneff wrote: »

however much is in your ISa at the end of the tax year, this is what you get paid interest on, simple as that.

My ISA pays interest monthly, presumably calculated on a daily basis.

But yes OP, you earn interest on previous years ISAs as well as your current one. Most of them have carp rates after the first year, so definitely look to transfer when the next tax year starts. You may need a different account for your previous years ones and your new current one, as many of the best rates don't accept transfers.

MsSupertech

Remember the ISA can be transferred at any time throughout the year as long as the particular accounts allow it.
You're not necessarily restricted to transferring at the beginning of the tax year. Do it whenever a significantly better rate is on offer.