ISA Interest paid into another ISA

bigbars

Advice on a theory if I may. I have already used this years 2023 isa allocation. I have a fixed rate Cash ISA. Which due to the 85k limit and faff reducing the balance I do not want to add to. To retain the interest free status of the interest payment. Could I change my interest instruction so that instead of adding it to the same Isa I change it to deposit/ transfer the interest into a flexible cash isa with another provider? Or would that be classified as contributing to my isa as the other provider would see it as a deposit and wouldn’t have a means to identify it as an interest payment. As I know if I transfer to a normal account it will be taxable once it touches the normal account. And if I subsequently transferred it to another isa it would breach the rules for this year.

 I looked around in the search, but couldn’t get a clear answer.

Albermarle

Or would that be classified as contributing to my isa as the other provider would see it as a deposit 

It would be seen as a new deposit so not allowed.

bigbars

Albermarle said:

Or would that be classified as contributing to my isa as the other provider would see it as a deposit 

It would be seen as a new deposit so not allowed. 

Thanks, I kinda assumed that would be the case as there wouldn’t be any kind of flag to alert them that it is interest. So I’ll just leave it where it is for now.

 I Have to get more creative with plans for future isa years now the limit is more a factor. Including not maxing out my allowance straight away and evenly staggering my fixes throughout the year, have a few maturing around the summer which isn’t ideal.

refluxer

Reducing the balance of your ISA once it matures shouldn't take too much effort. The majority of fixed rate cash ISAs I've taken out have defaulted into maturity/easy access ISAs upon maturity. If this is the case with your ISA and you let this happen (or, if it isn't, you arrange for it to be transferred into an easy access ISA with the same provider when the fixed rate period ends), then you simply open a new fixed rate cash ISA elsewhere and arrange to transfer one portion of your existing ISA into it and (once that is sorted) do the same again with the remainder. It's just a case of making sure that the first new ISA provider you choose allows partial transfers in.

If all the providers involved are members of the BACs ISA transfer service, then this could all be done online and (potentially) in just a few days. Just doing this once and cutting your ISA in half will obviously mean you won't have to worry about this again for a very long time.

bigbars

Yes, thanks. that’s what I did previously on maturity to get to a decent level, just didn’t allow for interest rates being what they are now, so only allowed for a bit of wiggle room based on previously low rates, I’ve corrected my others so it’s no longer a consideration. so I’ll be doing it once again once this current 2 year fix is over down to 65k. Was just trying to mitigate it by sorting the interest in the interim. Maybe a bit better planning on my part around that time to set up new fix isa ready for the transfer and maturing it into an easy access doing the transfer of funds to get the required level and transfer into the fix.

Albermarle

bigbars said:

Yes, thanks. that’s what I did previously on maturity to get to a decent level, just didn’t allow for interest rates being what they are now, so only allowed for a bit of wiggle room based on previously low rates, I’ve corrected my others so it’s no longer a consideration. so I’ll be doing it once again once this current 2 year fix is over down to 65k. Was just trying to mitigate it by sorting the interest in the interim. Maybe a bit better planning on my part around that time to set up new fix isa ready for the transfer and maturing it into an easy access doing the transfer of funds to get the required level and transfer into the fix.

Although it is always best to stay under the £85K compensation maximum, I wouldn't be losing any sleep if one of my accounts crept over that limit for a few months. A bank bankruptcy is unlikely, and even more unlikely that if it did happen then they would not get taken over. The only payouts from the FSCS for savings in many years has been minor amounts for small credit unions going under.

bigbars

Albermarle said:

bigbars said:

Yes, thanks. that’s what I did previously on maturity to get to a decent level, just didn’t allow for interest rates being what they are now, so only allowed for a bit of wiggle room based on previously low rates, I’ve corrected my others so it’s no longer a consideration. so I’ll be doing it once again once this current 2 year fix is over down to 65k. Was just trying to mitigate it by sorting the interest in the interim. Maybe a bit better planning on my part around that time to set up new fix isa ready for the transfer and maturing it into an easy access doing the transfer of funds to get the required level and transfer into the fix.

Although it is always best to stay under the £85K compensation maximum, I wouldn't be losing any sleep if one of my accounts crept over that limit for a few months. A bank bankruptcy is unlikely, and even more unlikely that if it did happen then they would not get taken over. The only payouts from the FSCS for savings in many years has been minor amounts for small credit unions going under.

I agree, that’s why I’ve not stressed too much as I took remedial work a few years earlier to break it up, I  just didn’t allow for the internet hikes. Which resulted in a lot more interest. I’m fortunate that before I got a mortgage, I only had one large one for a number of years and  it was 100+ and the bank didn’t fail before I realised about the fscs comp limit and started working towards splitting it.