What happens to interest when transferring an ISA

cpw1989

I want to transfer my NS&I Direct ISA from the 15/16 tax year out in full to a new provider (probably Sainsburys) before the rate drops again in June.

My question is: What happens to the interest accrued on that ISA since the start of the tax year (it will be about 2 month's worth)? Is that lost when you transfer out? Or do they add that to the balance when they make the transfer? Or do they still wait until April next year and give you what you had accrued then? It's not clear on their website and in the brochures what happens.

Many thanks.

AnotherJoe

i agree it's not clear but I'd expect them to calculate and pay it included in the transfer because they won't want the hassle of sending a separate amount later. Maybe someone who has done it recently can say otherwise phone them on Monday.

In any case, how much money is involved because cash ISA rates are so low that in most cases it won't make much difference anyway and since they pay it at the end of the tax year you are only looking at a few weeks interest.. Your money may be better off in a high interest current account or have you maxed those out?

colsten

Unless you do a partial transfer and leave some money behind in the old ISA, your old provider will calculate the closing interest amount up to the day of transfer. The interest will then be transferred together with the balance you had before, and the old ISA will be closed.

cpw1989

Thanks.

IRT AnotherJoe - Yes, I'm pretty much maxed out on the high interest current accounts with the rest of my savings - I've done my calculations on the interest I am expecting from those for this tax year and it will be a couple of pounds short of the maximum personal allowance come April. I don't want to have to go through the hassle of being assigned a new tax code and being taxed on any additional interest I make - so I'm keeping this money in a cash ISA. Transferring that ISA from a 1% to 1.3% account could result in an extra £35 interest over the remainder of the year - which although not mind-blowing - is tax free - and every little helps.

YorkshireBoy

cpw1989 wrote: »

...I'm pretty much maxed out on the high interest current accounts

Pretty much? So you're nudging £50.5K making 3% AER or better (£130.5K if there are two of you)?

What about high interest regular savers paying 4-6% AER and taking upwards of £2K a month (£4K if there are two of you)?

I'd rather pay some tax on 6% (or 4.5% if I'm drip feeding from a 3% account) than get a tax-free 1.3%, even if it means exceeding my PSA and having to let HMRC know.

[Deleted User]

I transferred my mother's NSI Direct ISA in early 2016, following the previous interest drop (1.5% to 1.25%, which happened in November 2015, if I recall correctly). I transferred the full amount (it was 2014/15 and 2015/16 subscriptions, so about £30,240 in total) to a one year fixed rate ISA with Virgin Money, paying 1.65% pa (at that time). NSI calculated the accrued interest up to the transfer date, and added that to the transfer amount which they sent to Virgin Money.

I didn't realise that the NSI rate is dropping again in June. A bummer. Best to transfer, even though your gain may not be much.

kidmugsy

YorkshireBoy wrote: »

What about high interest regular savers paying 4-6% AER and taking upwards of £2K a month (£4K if there are two of you)?

Especially because they tend to pay interest on maturity i.e. next tax year.

YorkshireBoy

kidmugsy wrote: »

Especially because they tend to pay interest on maturity i.e. next tax year.

Which is particularly useful if you intend to spend some of your savings capital in the current tax year, thereby taking you well below the PSA figure next tax year.