Cash Isa- Annual or Monthly interest?

moyke

Hello,

I am very fortunate as a working pensioner to be in a position where my wife and me earn more than £1000 interest a year. Thus I am transferring monies to cash isas. My question is, does it make any difference for Taxation purposes whether i earn ISA interest monthly or annually?

Any advice gratefully received.

Thank you 

JGB1955

No difference at all for taxation purposes - you're not paying any tax.  However, if you take the interest out every month you are then moving it into taxable income.  If it remains in the ISA all of the compounded interest is tax free.

eskbanker

No, as interest earned within ISAs isn't taxable, it makes no difference, assuming the AER of both options is identical, as it almost always is.

moyke

Hello again,

If i take out the interest to subsidise my income, does that change whether I should withdraw manthly or annually?

Thank you so far!

Qyburn

I don't think there's any downside to monthly interest from an ISA. Leave it in the ISA and it compounds and ends up paying the same total as annual interest.

Qyburn

JGB1955 said:

No difference at all for taxation purposes - you're not paying any tax.  However, if you take the interest out every month you are then moving it into taxable income.  If it remains in the ISA all of the compounded interest is tax free.

Just to be clear the act of taking out interest doesn't make it taxable. It's just if you withdraw the interest and pay it into a non-ISA savings account then the "interest on the interest" would be taxable.