ISAs questions I don't get

HIM_POPPY

Hi all,

Been saving hard for a while and looking to protect my money. I get the fact that a ISA can give you decent interest rate however I have three questions:

1. If an ISA was 3% AER and I put in £100 for the whole 2014/2015 year thoeretically I would get paid out £3 interest in April 2015 and then that £103 total would carry onto the next year 2015/2016 giving me a payout of £3.09 in April 2016 and £106.09 in total. Does the last year balance carry over to the next years earnings or do you have to make a fresh deposit before that year starts?

2. The tax free thing I don't get, how is your money tax free, you still get charged tax on your salary and you do not get charged any tax on your balance in a normal bank account so how is it tax free? I assume it's just your interest accrued is tax free?

3. The deposits thing, is there a min/max, will a bank ISA seriously refuse me putting more money into an account with them. Can you not just whack the full 15k in straight away if you can afford it or is it limited? If you deposit over several months how is the interest worked out? Could be 5k in there in April and then say a 1k top up every month for the financial year up to 16k I would not receive 3% of 16k would I as interest?

Vortigern

1. Previous year balance carries forwards to the next year. No need to make a further deposit - but the interest rate will probably fall

2. In an ordinary savings account, tax is deducted from your interest. In an ISA, no tax is deducted. No tax is deducted from your capital in either sort of account.

3. Yes the bank will refuse (and return to you) any oversubscription. You can't whack the full 15K in until July.

4. Interest is calculated on a daily basis, so your 5K from April might get a full year at 3% but your last payment of £1000 next March would get 1000 x 3% x 30/365

Three questions???

badger09

HIM_POPPY wrote: »

Hi all,

Been saving hard for a while and looking to protect my money. I get the fact that a ISA can give you decent interest rate however I have three questions:

Vortigern has answered your questions but, I would question your first statement - my bold.

At the moment, Cash ISAs do not give you a decent interest rate.

Current accounts, however, even after tax is deducted, can pay you a decent rate of interest.

Consumerist

badger09 wrote: »

. . . Current accounts, however, even after tax is deducted, can pay you a decent rate of interest.

. . . and by decent I would suggest it means you should be aiming to beat inflation. Most savings accounts are struggling to come close but some interest-paying current accounts (up to 5% gross) are doing better.