ISA interest help

Ralph111

Hi

If I want to open an ISA but have interest nominated to a non ISA account I assume that becomes taxable? What if the interest is paid into the ISA account but that account allows withdrawals? Would the withdrawals (Inc interest) be taxable?

For fixed ISA products (say 1 year) would the amount on maturity become taxable if transferred into a non ISA account?

masonic

If interest is paid to an external account only interest generated on the interest is taxable. No interest generated on the balance of the ISA is taxable.

Ralph111

So if say I earnt £100 a month from the ISA which went into an external nominal account that £100(£1200 a year) wouldn't be subject to tax but the amount of interest on that would be? Which in the case of my nominal account is very small and under allowances.

masonic

Yes, that's right. But bear in mind that the best 1 year fixed rate ISA pays about 20% less interest than the best 1 year fixed savings account.

RG2015

masonic wrote: »

Yes, that's right. But bear in mind that the best 1 year fixed rate ISA pays about 20% less interest than the best 1 year fixed savings account.

Cash ISA rates are creeping up. The best 1 year ISA rate now is 1.77% pa compared to the best 1 year fixed rate account rate of 1.97% pa. Hence a 10% difference.

Both of these accounts are with Shawbrook Bank.

Ralph111

Thanks both makes sense.

Have any of you tried peer to peer lending? I'm quite risk averse so haven't gone down that route but the low ISA saving rates don't really excite me enough.

Reed_Richards

masonic wrote: »

Yes, that's right. But bear in mind that the best 1 year fixed rate ISA pays about 20% less interest than the best 1 year fixed savings account.

According to this https://forums.moneysavingexpert.com/discussion/401374/cash-isas-the-best-currently-available-list&page=229 there are four institutions offering a 1 year fixed ISA at between 1.74% and 1.76% (data last edited 2/4/19). According to this https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fixedsavings the three best rates for a non-ISA 1 year fix offer between 1.95% & 1.97%. That's about 11% less for an ISA, not 20%

eskbanker

RG2015 wrote: »

Cash ISA rates are creeping up. The best 1 year ISA rate now is 1.77% pa compared to the best 1 year fixed rate account rate of 1.97% pa. Hence a 10% difference.

Both of these accounts are with Shawbrook Bank.

Reed_Richards wrote: »

According to this https://forums.moneysavingexpert.com/discussion/401374/cash-isas-the-best-currently-available-list&page=229 there are four institutions offering a 1 year fixed ISA at between 1.74% and 1.76% (data last edited 2/4/19). According to this https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fixedsavings the three best rates for a non-ISA 1 year fix offer between 1.95% & 1.97%. That's about 11% less for an ISA, not 20%

As per https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#sharia (a subsection of the fixed rate part of the article), you can get 2.2% for a one-year fix with BLME, albeit this is the Sharia-compliant 'expected profit'. The leading 1.77% ISA is 20% lower than this, to the nearest whole number....

masonic

Exactly, best 1 year fix is 2.2% (I opened one last month and the rate is still available). Sharia-compliant fixed rates are actually slightly superior to interest-paying fixes, because there is a small chance they will change the 'expected profit' and allow you early access with no penalty (although I don't think this has ever happened in practice). For all intents and purposes, including FSCS protection, 'expected profit' = 'interest' and is guaranteed once accrued.

masonic

Ralph111 wrote: »

Thanks both makes sense.

Have any of you tried peer to peer lending? I'm quite risk averse so haven't gone down that route but the low ISA saving rates don't really excite me enough.

P2P lending is medium-high risk. It can be a useful diversifier if you already have significant S&S investments, but it's a lot higher risk than cash savings.

Reed_Richards

eskbanker wrote: »

As per https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#sharia (a subsection of the fixed rate part of the article), you can get 2.2% for a one-year fix with BLME, albeit this is the Sharia-compliant 'expected profit'. The leading 1.77% ISA is 20% lower than this, to the nearest whole number....

The only institution (that I can find) that offers Sharia-compliant ISAs is Al Rayan Bank and whilst they offer 2.17% on a 1-year fixed term deposit, their 1-year ISA offers a meagre 1.6%. So the reason the difference is 20% and not 10% is that the Sharia-compliant premium does not apply to ISAs.