ISA confusion - please help!

redchai

Hi all,

Apologies if I'm asking some silly questions, but I'm trying to get my head around my ISA (or NISA now!).

Here's the situation: I've currently got around 15k in my NISA, 5k was paid in last tax year and 10k this tax year. I need to lend some money to a family member, and have said I will lend them 15k. They know it's coming out of my ISA, so they are happy to pay it back to me, plus the tax free interest I would have earned on it. I currently have an account with Santander which pays 1% interest if you have over 10k in the account.

Presumably, once I withdraw the 15k, I can then only pay 5k back in once the money is paid back to me (as I have already used up 10k of my tax free allowance).

What would be the best option for me if I can no longer utilise my ISA to its full potential this tax year? Would it be sensible to then put the remaining 10k in a high interest savings account and then pop it back into my ISA once the new tax year starts in 2015?

Also, what would be the fairest way of calculating the interest I would get at the end of the tax year for the person I'm lending the money to? I know interest is calculated daily, but if I wasn't doing this I would be extremely unlikely to need to withdraw anything from my ISA this year. So even if they pay it back to me within a month, the tax free interest on that amount has been lost for most of the year... right?

Thanks in advance for any help and do feel free to correct me if I've got any of this wrong!

colsten

redchai wrote: »

I currently have an account with Santander which pays 1% interest if you have over 10k in the account.

you know they have an account that pays 3% AER on £3K - £20K?

redchai wrote: »

Presumably, once I withdraw the 15k, I can then only pay 5k back in once the money is paid back to me

correct

redchai wrote: »

Would it be sensible to then put the remaining 10k in a high interest savings account and then pop it back into my ISA once the new tax year starts in 2015?

you can get 3, 4 and 5% AER in current accounts, and 4 and 6% in monthly savers. Whether it makes sense to put the money back into an ISA in 2015 depends on when you are planning to spend the money. If you don't need the money in the next 5 or so years, an S&S ISA might be a good choice.

redchai wrote: »

So even if they pay it back to me within a month, the tax free interest on that amount has been lost for most of the year... right?

Yes, but you could most likely make more money outside a cash ISA.

redchai

Thank you, that's really helpful! I do now know that I could be getting a better rate on my ISA, but alas, I was too silly to look into that before I used up most of this year's allowance. Most of this stems from sheer laziness more than anything else!

I'm hesitant to put the money into an S&S ISA as I may need it in less than 5 years. But probably not in the next 2 years. Would it be more sensible for me to put the money in a savings account?

In terms of calculating what they owe me on top of the 15k I'm lending, what would be the fairest way of doing this? In no way do I want to make any money from the person I'm lending to (I'm doing it purely to help them out!) but at the same time, I don't want to lose anything. Or would it be better to perhaps pay the money back into a high interest account, and see how much I get at the end of the year? If it ends up being more than I would have with my current ISA, it doesn't really matter to me.

jimjames

No, a savings account isn't a great idea.

As above the best rates are available on current accounts which pay up to 5% on certain balances depending on the bank.

redchai

The high interest current accounts I see recommended on MSE require between £500-1500 to be paid in per month (sorry, tried to post a link but it got blocked!)
Some require a minimum of 2 direct debits to be set up too.

So the interest rate is good, but all I'm looking to do is deposit one lump sum into the account and leave it there. So I don't think that would work for me, as I don't think I have the patience to slowly deposit the 15k over the course of a year.

In the long term I should probably switch my current account as the one I have at the moment is pretty terrible. But pointless paying the savings back into my current account as it's a Natwest one with that offers zero interest!

masonic

Why don't you start with this...

Open 2 x TSB Plus accounts and deposit £2000 in each. Set up a monthly standing order from account 1 to account 2 and another one from account 2 to account 1 for £500 to cover the funding requirement. This will generate £156 interest over 12 months (after basic rate tax), which is already more than the £150 you would have got on the whole £15k in your 1% ISA.

Now you just need to decide what to do with the remaining £11,000.