ISA help

skooldaze

Hi

Quite new to the ISA world and even the cake user guide didn't really clarify it for me (sorry)

I've just applied for an ISA account and intend to put £700 each month for 12 months and then withdraw the funds so I collect the AER and the bonus. However I'm confused by the financial year. Currently the account I have set up is 3%

1) At the end of the financial year - what happens to the cash I have placed in there - do I lose out on any acrued interest (I've opted for a monthly payout)?

2) Does my % potentially change?

3) I keep seeing use it or lose it - not sure what this applies to?

If anyone can help it would be appreacited.

Many Thanks

jem16

skooldaze wrote: »

I've just applied for an ISA account and intend to put £700 each month for 12 months and then withdraw the funds so I collect the AER and the bonus.

If you withdraw the funds you lose the tax-free status. Either keep it where it is earning tax-free interest or transfer it to a better paying ISA.

However I'm confused by the financial year. Currently the account I have set up is 3%

The tax year is April 6th to April 5th.

1) At the end of the financial year - what happens to the cash I have placed in there - do I lose out on any acrued interest (I've opted for a monthly payout)?

Nothing happens to it at the end of the year. It just stays there accruing tax-free interest. Are you having the interest paid monthly into the ISA account?

2) Does my % potentially change?

It can do. It depends on whether you have a vraiable rate, a fixed rate or even a bonus rate.

3) I keep seeing use it or lose it - not sure what this applies to?

It means that every tax year you have an allowance that you can place inside an ISA. Currently it's £5340 for cash. If you don't use the allowance each year you can't build up a tax-free pot of money.

skooldaze

Thanks - thats clarified a few things for me. Just a couple more...

1) If I did save £5340 up till April 11 and then does it reset again to April 12 allowing me to save another £5340?

2) It says never withdraw cash. So this might sound a silly question but if I have saved into my £5340 plus say 3% interest = £160. But I want to withdraw my cash (say May 2012 after the financial year) - do I lose my £160 or 20% of that to the taxman?

3) If I keep it in there for 2 years and withdrew, do I lose just the first year of savings interest or the last two years?

Mikeyorks

skooldaze wrote: »

I've just applied for an ISA account and intend to put £700 each month for 12 months and then withdraw the funds so I collect the AER and the bonus. However I'm confused by the financial year.

Further to Jem's post. The financial year is critical to you - because it means you can't quite do what you suggest. The (cash) ISA allowance for this year (to 5th April) is £5340 ...... next year it goes up to £5640.

So - even if you get 3 x £700 in this year ....... the allowance doesn't quite facilitate your 9 x £700 for next year. So you're going to have to adjust a little?

skooldaze

Mikeyorks wrote: »

Further to Jem's post. The financial year is critical to you - because it means you can't quite do what you suggest. The (cash) ISA allowance for this year (to 5th April) is £5340 ...... next year it goes up to £5640.

So - even if you get 3 x £700 in this year ....... the allowance doesn't quite facilitate your 9 x £700 for next year. So you're going to have to adjust a little?

I understand - so based on £5640 - the maxium I can put in is £470 a month

savemoney

Yes if you wanted too you can of course vary that each month as long as it doesn't go over the amount allowed each year

skooldaze wrote: »

I understand - so based on £5640 - the maxium I can put in is £470 a month

skooldaze

Thanks - could anyone answer the other two points I raised?

Mikeyorks

skooldaze wrote: »

I understand - so based on £5640 - the maxium I can put in is £470 a month

You can put in the £700 planned - but only for the first 8 months.

skooldaze wrote:

2) It says never withdraw cash. So this might sound a silly question but if I have saved into my £5340 plus say 3% interest = £160. But I want to withdraw my cash (say May 2012 after the financial year) - do I lose my £160 or 20% of that to the taxman? No you don't lose the £160 nor do you get taxed on withdrawals BUT ## see my note below

3) If I keep it in there for 2 years and withdrew, do I lose just the first year of savings interest or the last two years? You don't lose anything. You get the money back that you've paid in plus any accrued interest to the date you close the account

## If you put £5340 into a 3% ISA - you will get £160 interest at the end of 12 months. But ..... as you're putting £700 per month in then it's only the first £700 that gets a full years worth of interest. The second £700 gets 3% .... but only for 11/12ths of the year - and so on.

skooldaze

Mikeyorks wrote: »

## If you put £5340 into a 3% ISA - you will get £160 interest at the end of 12 months. But ..... as you're putting £700 per month in then it's only the first £700 that gets a full years worth of interest. The second £700 gets 3% .... but only for 11/12ths of the year - and so on.

Ah I think I get it, but if I put £5340 in Month 11, wouldnt the interest I get at the end of that month just be the same amount as if I put in £488 in each month.

Does the interest not work out the same at the end of the day?

xylophone

You can put in up to £5340 in this tax year which ends on April 5th.
From April 6th up to 5th April 2013 you can contribute up to another £5640.
If you are contributing monthly then the amount of interest received at the end of the year is not the same as if you contribute the full lump sum at the start of the tax year.
If you close your account you do not lose anything to the tax man - the interest on ISAs is tax free.
If you now contribute £5340 into the ISA and withdraw the money in May you will get your capital back plus the interest earned to date - around £30-£40?

Mikeyorks

skooldaze wrote: »

Ah I think I get it, but if I put £5340 in Month 11, wouldnt the interest I get at the end of that month just be the same amount as if I put in £488 in each month.

That's a bit of a chalk and cheese comparison?

If you put £5340 into an account at 3% - the interest for a single full month is £13.35.

If you put £488 per month in then you get £14.64 for the 1st month - after a full year. But only £1.22 for the final £488 ..... as it is only there one month. Assuming regular payments of £488pm (£5856) - the total interest after a full year would be just over £95.

Clearly putting the £5340 in for a full year (interest £160) is the most beneficial