ISA Queries

D_Harwood

Hi all,

I opened an ISA in 2012 to use as a sort of casual savings account which I've dipped in and out of over the years. I've recently started taking saving more seriously and have done a lot of reading up on (N)ISAs over the past few days but there's a couple of things I can't get my head around and I have a few questions I'd be very grateful if someone should answer.

I've paid into the ISA that I opened in 2012 this tax year. Does this mean my allowance will have renewed as if I opened a new ISA or will the interest for the money I'm paying in just be taxed normally?

Also, with regards to transferring to a new ISA, does depositing money into an old ISA at the start of a new tax year use up my 1 new ISA account/year limit, or am I still able to open a new one for the better rate and begin topping that up instead? (Despite having deposited money into my old ISA already this year.)

I've read a few times now that withdrawing money from an ISA will cause it to 'lose its tax benefits'. As I am in no danger of exceeding my £15000 tax free allowance, does it matter if I withdraw money and deposit it again other than the fact that it uses up my allowance? For example, if i start the year with £1000 in my account, withdraw the full amount, then deposit £1000 again, will the interest for the new balance still be tax free? (I understand that I would now only be able to deposit an additional £13000.)

Thanks in advance,

Dylan

Archi_Bald

D_Harwood wrote: »

I've paid into the ISA that I opened in 2012 this tax year. Does this mean my allowance will have renewed ....

everybody gets a new ISA allowance each tax year, regardless of any ISA accounts they may have.

D_Harwood wrote: »

..... will the interest for the money I'm paying in just be taxed normally?

interest you receive in an ISA is tax free. Tax free interest is the whole point of cash ISAs. But tax-free interest does not always mean more money than taxed interest - and in most cases in the last couple of years, it didn't.

D_Harwood wrote: »

Also, with regards to transferring to a new ISA, does depositing money into an old ISA at the start of a new tax year use up my 1 new ISA account/year limit, or am I still able to open a new one for the better rate and begin topping that up instead? (Despite having deposited money into my old ISA already this year.)

you can only deposit into one cash ISA per tax year.

D_Harwood wrote: »

I've read a few times now that withdrawing money from an ISA will cause it to 'lose its tax benefits'. As I am in no danger of exceeding my £15000 tax free allowance, does it matter if I withdraw money and deposit it again other than the fact that it uses up my allowance?

You are right, if your total savings come near your annual ISA allowance, it basically doesn't matter whether you make withdrawals. The only thing that matters is your annual ISA allowance - £15,000 this financial year, and an additional £15,240 for the year beginning April 6 2015.

BUT - and this is most likely a lot more important than ISAs for you:
if you keep depositing and withdrawing, you are probably wasting money by doing it in a cash ISA. You would almost certainly do a lot better by using interest paying current accounts, starting with the 5% TSB Plus.

Are you familiar with the MSE Savings Fountain?

What are the sums you are depositing and withdrawing, and how much do you do you deposit / withdraw when?

jimjames

1% or less on an ISA or 5% with tsb? No brainer as even after tax you're way ahead.

D_Harwood

Thank you for prompt replies!

I think I understand, basically by paying into my existing ISA, I've elected it as the sole ISA I can deposit into for the tax year 14-15?

Just to check however, is there no way I can transfer to a new one by transferring the full amount and paying only into the new account from then on (I thought I'd read this somewhere). Or, does this only apply if I haven't deposited into an ISA at all this year and I must wait til 6th April to transfer?

As far as higher interest current accounts are concerned, because I'm a student, I have an overdraft which I don't pay interest on. I've done the maths and for this reason I believe it makes financial sense for me at the moment to use an ISA to gain interest on any money in excess of my monthly budget. When my interest free overdraft expires, I'll most likely pay it off and begin using current accounts to save.

Regards,

Dylan.

Edit:

Archi_Bald wrote: »

if you keep depositing and withdrawing, you are probably wasting money by doing it in a cash ISA.

Although i've dipped in and out of savings over the past few years, I'm now in a position where I can set some money aside and leave it there i.e. something like a fixed rate ISA.

jimjames

You can transfer an ISA and pay into the new account subject to any conditions.

But if your balance is much less than £15k and won't increase then you may get a better rate just opening a new one to pay the money into IF you're determined to get the poor ISA rates instead of a current account.

I'm curious what maths you've managed to do that shows 1% tax free is better than 5% taxed. If you're a student then presumably lower or non taxpayer you'd get 4% net.

Archi_Bald

D_Harwood wrote: »

Although i've dipped in and out of savings over the past few years, I'm now in a position where I can set some money aside and leave it there i.e. something like a fixed rate ISA.

Which cash ISA will pay you better interest than various current accounts?

dancingfairy

D_Harwood wrote: »

Thank you for prompt replies!

I think I understand, basically by paying into my existing ISA, I've elected it as the sole ISA I can deposit into for the tax year 14-15? Yes, you are correct

Just to check however, is there no way I can transfer to a new one by transferring the full amount and paying only into the new account from then on (I thought I'd read this somewhere). Yes, you can Or, does this only apply if I haven't deposited into an ISA at all this year and I must wait til 6th April to transfer? No, you can transfer any time

As far as higher interest current accounts are concerned, because I'm a student, I have an overdraft which I don't pay interest on. I've done the maths and for this reason I believe it makes financial sense for me at the moment to use an ISA to gain interest on any money in excess of my monthly budget. When my interest free overdraft expires, I'll most likely pay it off and begin using current accounts to save.

Regards,

Dylan.

Edit:



Although i've dipped in and out of savings over the past few years, I'm now in a position where I can set some money aside and leave it there i.e. something like a fixed rate ISA.

As we are coming up to the beginning of ISA season I'd probably wait a few weeks and see what deals are coming out.

Archi_Bald

Probably worth reminding people of the recently revised MSE Towers advice for savings: http://www.moneysavingexpert.com/savings/which-saving-account

D_Harwood

@Archi Bald, jimjames

I'm not saying that I've found and ISA with a better interest rate than the high interest current accounts, the maths is regarding paying off my overdraft.

For example:

If I have a maxed £200 overdraft and a £300 lump sum, paying off my overdraft would leave me with £100 to put in a current account (Earning £4 interest for the year at say 4% after tax).

If I put the full £300 and stick it in an ISA at say 2.25% I get £6.75 interest for the year.

So the way I see it, it makes sense for me to save in an ISA at the moment until I need to pay off my overdraft?

Dylan.

@dancingfairy

Thank you,

Can I ask though, if it's possible for me to transfer to a new ISA now, and then another new ISA after the 6th April, is there any reason why I shouldn't do this for a higher rate this month, and then switch again in April once the deals appear (for an even higher rate)?

Dylan.

Archi_Bald

D_Harwood wrote: »

For example:

If I have a maxed £200 overdraft and a £300 lump sum, paying off my overdraft would leave me with £100 to put in a current account (Earning £4 interest for the year at say 4% after tax).

If I put the full £300 and stick it in an ISA at say 2.25% I get £6.75 interest for the year.

So the way I see it, it makes sense for me to save in an ISA at the moment until I need to pay off my overdraft?

Your figures are flawed as you ignore the cost of the overdraft. You are also comparing apples and pears as you don't magically have more money to save just because you could put it into a certain type of account. What you need to compare are the AERs of the ISA and the non-ISA accounts (taking into account tax).

D_Harwood wrote: »

Can I ask though, if it's possible for me to transfer to a new ISA now, and then another new ISA after the 6th April, is there any reason why I shouldn't do this for a higher rate this month, and then switch again in April once the deals appear (for an even higher rate)?

You can do what you describe though I have difficulties understanding why you would stick with ISAs when you can get a lot more interest in other places.

Did you read the MSE document I linked to, btw?

jimjames

Why would you pay off your overdraft? There is no difference whether your £300 is in an ISA or current account or savings account.