Drip-feed from Chip ISA to regular savings - cons?

TheKDs

Anyone using the Chip ISA? Can I simply move all my money there and drip feed out to higher rate regular savers if I need to? Normally should just be covered with my salary but what could go wrong with this strategy? I've just seen the MSE high-interest lump sum and drip-feed from lump sum into regular savers comparison for a year and it would be about quite a good bit more which is worth it for me.

ro1892

Assuming the regular savers are non ISA then I guess you'd lose your ISA status on the money you transfer?

Unless of course the Chip ISA is flexible and allows you to repay money in you've withdrawn without affecting your ISA allowance. In that case you could repay the money from the regular saver (assuming it allows withdrawals) back into the Chip ISA before the end of the tax year.

gravel_2

What is the rate difference between the ISA and RS? Over the duration of the regular savers will you actually earn more or not by doing as you say? Are you already likely to pay tax on interest or are you within your personal savings allowance?

TheKDs

@gravel_2gravel_2 said:

What is the rate difference between the ISA and RS? Over the duration of the regular savers will you actually earn more or not by doing as you say? Are you already likely to pay tax on interest or are you within your personal savings allowance?

Yes, I will earn more interest. Used the calculator here https://www.moneysavingexpert.com/savings/regular-savings-calculator/ I don't think I will pay tax on interest as I won't hit £1000 from my calculations but if I did this would help with not being taxed on part of that anyway. Rate diff is 1-2%. 

ro1892 said:

Assuming the regular savers are non ISA then I guess you'd lose your ISA status on the money you transfer?

Unless of course the Chip ISA is flexible and allows you to repay money in you've withdrawn without affecting your ISA allowance. In that case you could repay the money from the regular saver (assuming it allows withdrawals) back into the Chip ISA before the end of the tax year.

Chip is flexible.

elkiedee

It depends on your circumstances, including how much money you have to save. Drip feeding from other cash savings to an RS is a way to make a bit more interest by earning a higher rate, but you need to calculate how much interest you will actually gain and lose (taking into account your amount of money in savings, rates, fees, time taken to move money between different banks/building societies, what tax bracket you're in, how much taxable interest you will get in the year and whether or not you're likely to have to pay tax).

I would have thought that drip feeding from other savings to a Regular Saver may make sense if you're not able to pay in from a regular monthly income, or if you want to have more than one Regular Saver Account and want to pay more money into them than you can fund from your wages/other monthly income.

Does the Chip ISA allow regular withdrawals, and how long would it take to withdraw the money and pay it into the Regular Saver? Can you do that without losing a day or so's interest each month? What happens on bank holidays and non working days. Otherwise, might it be faster to pay in from wages/income on the 1st of every month (or other date if preferred, and take money from the ISA or other instant access savings if and when you need to pay for something outside day to day spending?

surreysaver

A con I can think of, is its a flexible ISA, and you want to refill it by the end of the tax year to protect the ISA wrapper. You might want the full £20k in the ISA on April 5th before taking it out again, to give you the future potential to always have your ISA maxed out in previous tax years