Interest On ISA if I withdraw cash?

davidbotly

Hi

I'm self employed and plan on using my isa to save for my tax bill twice a year.

Between now and July I need to save roughly £2000 which I then need to withdraw and pay a tax bill. I then plan to save the remainder £3640 of my tax free allowance to withdraw in January to pay the remainder of my tax bill.

My question is: on how much of the isa savings will I earn interest and a bonus on even though I am withdrawing all of it before the end of the tax year? Will I earn any interest on either the £2000 and £3640 separately or will I forfeit both completely as I'm withdrawing before 5th April?

I think interest is calculated annually on it so wasn't sure if it took into account any of my savings for the year even though I don't keep them in the isa for a full 12 months?

Any help greatly appreciated, thanks



(considering the Principality BS ISA as recommended)
The e-ISA (issue 3) from Principality BS* pays 3.1% AER including a 1.3% bonus for a year. It accepts transfers in from previous years ISAs.

psychic_teabag

Generally interest is calculated daily, whether it's paid monthly or annually.
So you will earn interest for every day you have money in the ISA.

Do you have previous years to transfer in ? If not, the AA one will pay 3.5%
And even if so, you could transfer previous one to Principality and put new money in AA.

davidbotly

Oh great thanks for that. That's good news then - wasn't sure if it 'banked' interest and still paid out even if there was no money left at the end of the year.

AA one looks great - think it's minimum of £1000 to pay in though isn't it? Don't have that much yet, but if better interest, might be worth hanging on a month or two until I do!

Thanks again

psychic_teabag

One other thing : if you have any other savings, it's usually considered better to use the ISA for long-term savings, and use an ordinary savings account for this sort of thing.

Well, not necessarily an ordinary savings account. Might be able to use a regular saver account such as the Monmouthshire BS flexible saver - 4% taxable but probably flexible enough for what you need. In fact, if you are a basic-rate taxpayer, 4% taxable is slightly better than the 3.1% tax-free you'd get from Principality ISA.

davidbotly

Actually I think it's £2,500 minimum isn't it?

psychic_teabag

No guarantee that the AA one will still be available in a month or two, unfortunately. And it's min of £2500, I'm afraid. Cheshire BS also offer 3.5% in a postal account, min £1000.

davidbotly

psychic_teabag wrote: »

One other thing : if you have any other savings, it's usually considered better to use the ISA for long-term savings, and use an ordinary savings account for this sort of thing.

Well, not necessarily an ordinary savings account. Might be able to use a regular saver account such as the Monmouthshire BS flexible saver - 4% taxable but probably flexible enough for what you need. In fact, if you are a basic-rate taxpayer, 4% taxable is slightly better than the 3.1% tax-free you'd get from Principality ISA.

Thanks again for your advice. D

Mikeyorks

davidbotly wrote: »

AA one looks great -

Even for getting a bit of your own back with HMRC - it's not a brilliant idea to use an ISA like this. Unless - you don't save elsewhere.

But if you do save elsewhere then consider switching the ISA to that role. And use a more standard account for HMRC.

davidbotly

Hi thanks for the post. Sadly I don't yet save elsewhere as I still have a lot of previous debts to pay - so at the moment it's a way of making some amount of interest out of money that I have to 'save' for tax purposes.

Do appreciate the advice though