Do I stay with ISA or move - don't understand maths

Fitzmichael

Martin always warns about taking money out of an ISA, but I wonder why.
My main ISA (no transfers) pays 2.5% and another 1.5. It's unlikely I will ever have anywhere near enough to fill my annual ISA allowance. Why shouldn't I open a TSB current a/c (or 2) at 4% after tax and transfer £2000 from an ISA, then pay in and withdraw £500 a month to continue getting the interest? What am I losing?

Snowbelle

moneyunwise wrote: »

Can you explain?

Example ISA rate is 1.35%
Example current account rate is 4% but tax is 40% so the rate drops to 2.4% (60% of 4%)
So the current account is better.
Is my maths right on this?

Your maths is right - maybe you need to get yourself over to the Budgeting & Bank Account section as there are loads of threads about the different current accounts paying higher interest rates than you are presently getting, unless of course you want to keep the money in ISA's.

Snowbelle

Fitzmichael wrote: »

Martin always warns about taking money out of an ISA, but I wonder why.
My main ISA (no transfers) pays 2.5% and another 1.5. It's unlikely I will ever have anywhere near enough to fill my annual ISA allowance. Why shouldn't I open a TSB current a/c (or 2) at 4% after tax and transfer £2000 from an ISA, then pay in and withdraw £500 a month to continue getting the interest? What am I losing?

You can open 2 sole accounts pay in £2000 in each account then set up a SO for £500 between the two - no need to bother paying in and withdrawing each month.
Have a look here:
https://forums.moneysavingexpert.com/discussion/4919532

p00hsticks

Fitzmichael wrote: »

Martin always warns about taking money out of an ISA, but I wonder why.

Historically I think the reasoning is that once you take it out you've basically lost that part of your allowance for good and can never get it back. So if interest rates on Cash ISAs improve at a later date , or you wanted to move the money into stocks and shares within an ISA wrapper, that amount is lost to you.

But, in my opinion, that is only really important if you are generally maxing out your allowance each year (if you aren't then you'll have some leeway to put money back in later).

System

I am now annoyed!! I maxed out my ISA as soon as I could - and now wish I had not, storing that money in a high-ish account and transferring to the new set of current accounts.

I am not rich, don't earn major sums, have several outgoings, but most of all I am useless at picking winners with money!

innovate

You only need to transfer your current year's deposits, not the entire £11,800. You can wait until next March to actually do it, so you can save up in current accounts at rates that are above inflation.

innovate

Fitzmichael wrote: »

Martin always warns about taking money out of an ISA, but I wonder why.
My main ISA (no transfers) pays 2.5% and another 1.5. It's unlikely I will ever have anywhere near enough to fill my annual ISA allowance. Why shouldn't I open a TSB current a/c (or 2) at 4% after tax and transfer £2000 from an ISA, then pay in and withdraw £500 a month to continue getting the interest? What am I losing?

The MSE ISA Guide hasn't been properly updated in a very long time so doesn't necessarily give the best guidance now. You are absolutely right with your assessment and you shouldn't be misled by any 'use your ISA allowance at all costs' mantra. Go open those TSB accounts whilst they still accept applications (they have been incredibly popular). And if you have more than £4K, have a look at Regular Savers, and drip-feeding them, as well.

There are now some MSE articles/comments that acknowledge that saving in current accounts is a good thing, though they mostly end in telling you to use your ISA allowance at the end of the year. This is valid advice if you have £15K to save every year, but makes no sense at all if your entire savings and savings potential for the next near are below £15K.