Confused about ISA rates - please help me understand

alison141288

I currently have £21k in a Halifax ISA which has an interest rate of 2.5% gross.

I want to add my £5,940 allowance and have been looking at some other ISA accounts.

I'm reading the Best Cash ISAs page; I won't need to touch any of the money for about 18 months, and I already have the savings so don't need to save monthly.

Are there better ISA accounts out there for me? I don't understand how to compare my current interest rate with the other ISAs out there since my ISA refers to gross interest and the other ISAs refer to AER.

Thank you very much,
ALison

Cornucopia

Are you sure your existing account is an ISA?

No tax to pay means that gross and net are a bit meaningless.

2.5% is a good rate - assuming it's still paying that.

alison141288

Ah it's a Fixed 2 Year ISA, which I suppose is why the rate is pretty good. I only opened it last year so I'll add this year's allowance to it and it should be good until next year.

Also, I apologise for what is a very rookie question - how do I top-up my ISA? I have the sort code/account number for the ISA account - presumably I just transfer from my current account as I would to any ordinary account by plugging in the account details?

Thank you

bryanb

You may not be able to top up a fixed ISA.In fact it would be unusual if you could

Cornucopia

Yes - Fixed rate ISAs generally have an initial period when they are open for new deposits. And after that, they aren't.

alison141288

oh i see, so i will need to open a new ISA for this year's allowance onwards. thanks for the clarification, all!

Cornucopia

Yes - unfortunately the rates are generally lower than you're already getting, too.

Consumerist

alison141288 wrote: »

I I don't understand how to compare my current interest rate with the other ISAs out there since my ISA refers to gross interest and the other ISAs refer to AER.

The difference between "gross" and "AER" is usually insignificant and for practical purposes you can compare gross with AER as being the same.

The "gross" figure indicates the percentage interest you would receive if you withdrew the interest as soon as it is paid e.g. to provide you with ,say, a monthly income.

The AER is the total rate you would receive after a year if you left the interest in the account for a year. i.e. the interest added during the year will, itself, also earn a little more interest.

The AER is usually (slightly) more than the "gross" interest rate. Where interest is paid yearly, AER and the gross rate are the same

innovate

Consumerist wrote: »

The "gross" figure indicates the percentage interest you would receive if you withdrew the interest as soon as it is paid e.g. to provide you with ,say, a monthly income.

The gross rate applies to all monthly paying accounts, regardless of whether you withdraw the interest monthly or not.

To compare like with like, use the AER - as the name says, it gives you the equivalent rate for 12 months, irrespective of the interest payment frequency

Consumerist

innovate wrote: »

The gross rate applies to all monthly paying accounts, regardless of whether you withdraw the interest monthly or not.

But if you don't withdraw the interest monthly then you will get a greater annual return on the account by the end of the year; that's the AER

If we try hard enough we should be able to really confuse the issue.