Coventry 5 year ISA

katies_mum

I currently have an Isa with the Coventry and also one with Santander. I am considering transferring them both into the 2.3% 5 year Isa with the Coventry. Added together both Isa`s total approx £83,000.

I`m unsure what to do with the interest as over the 5 years it would take the balance of the account to over £85,000, or I think my only other option would be to have the interest paid annually into another account, but then would this defeat the idea of having an Isa as the interest would end up being be taxed.

Never been in this situation before so a little worried and getting myself rather confused about making the right decision, please could anyone help or offer any suggestions. Many thanks

Keep_pedalling

Assuming you are a basic rate taxpayer then you can earn up to £1000 of interest from saving outside an ISA, so unless you have a whole pile of cash sitting outside your ISAs already then tax is not an issue, and I would be more concerned with Inflation eating into your cash pile.

katies_mum

Thank you for replying. Sorry not sure what you mean by inflation eating into cash pile. Do you mean the Isa`s?

Keep_pedalling

katies_mum wrote: »

Thank you for replying. Sorry not sure what you mean by inflation eating into cash pile. Do you mean the Isa`s?

Basically if the inflation rate exceeds the interest rate you are receiving then from the point of view of purchasing power your savings are reducing.

Interest rates on ISAs have been so low for so long, we have not held them for around 9 years now having shifted them into S&Ss ISAs.

katies_mum

Thanks again for replying

Reed_Richards

Assuming you stick with Cash ISAs, the worst case scenario is that Coventry goes bust just short of 5 years hence, your investment is then worth approximately £91,000 but you only get back £85,000. If you want to guard against this possibility limit your initial investment with Coventry to £77,500 and find another home for the remaining £5,500.

katies_mum

Thank you Reed_Richards, I also thought of that last night, don`t know why it never crossed my mind. Think I will go with that option as even though its for 5 years can still access money with loss of 180 days interest should an emergency crop up.

FatherAbraham

katies_mum wrote: »

I currently have an Isa with the Coventry and also one with Santander. I am considering transferring them both into the 2.3% 5 year Isa with the Coventry. Added together both Isa`s total approx £83,000.

I`m unsure what to do with the interest as over the 5 years it would take the balance of the account to over £85,000, or I think my only other option would be to have the interest paid annually into another account, but then would this defeat the idea of having an Isa as the interest would end up being be taxed.

Never been in this situation before so a little worried and getting myself rather confused about making the right decision, please could anyone help or offer any suggestions. Many thanks

If the interest is paid out of the ISA, it will not be taxed, because it was earnt within an ISA. Tax is not payable on withdrawals of income or capital from an ISA.

Any interest generated from that interest would be potentially taxable if it were in a general savings account (though of course your Personal Savings Allowance may apply).

If the interest from the ISA were paid out into another ISA, then any returns on that interest would be tax free. However, in this case, the interest paid into this other ISA would count as new money - so you can't do this in the same tax year as you've contributed new money to the Coventry ISA, or transferred current-year contributions to the Coventry ISA.