Setting Up New 1Year Fixed ISA

DoneWorking

One of my  fixed ISAs has just matured and I want to shift the total funds to a new 1Yr Fixed Rate ISA with another Bank with over 0.5% higher interest

The ones I am looking at both offer monthly interest

What is the point of this service as I'm assuming I can't take this interest out without affecting the future interest due to early withdrawals 

Or have I got this wrong

I usually leave the interest to build up within the ISA ongoing 

But like the idea of have a few hundred pounds extra per month for a year 

Let me know if this will affect my ISA interest 

eskbanker

If interest is paid monthly and withdrawn without being left to compound, then the total interest earned over the year will be less than if you'd left it in, the two amounts corresponding to the gross rate and the AER.

DoneWorking

eskbanker said:

If interest is paid monthly and withdrawn without being left to compound, then the total interest earned over the year will be less than if you'd left it in, the two amounts corresponding to the gross rate and the AER.

Why do they offer monthly interest as the rate is lower than annual interest

On-the-coast

Because (despite the lack of compounding) some people like to (or need to) take a monthly income stream.
i have a 1yr fixed interest ISA and I choose monthly interest because I like to watch compounding in action, but I could have chosen annual - the result is exactly the same in my case. 

eskbanker

DoneWorking said:

eskbanker said:

If interest is paid monthly and withdrawn without being left to compound, then the total interest earned over the year will be less than if you'd left it in, the two amounts corresponding to the gross rate and the AER.

Why do they offer monthly interest as the rate is lower than annual interest

The monthly interest is paid at a lower rate so that if leaving it to compound, it'll deliver the same return over the year as if it had been paid annually (hence both monthly and annual interest options having the same AER).

Obviously if withdrawing that interest, the total return will be lower, but the recipient will have had access to that money during the year, which is useful to some.

XzavierWalnut

I have had ISA's since they started, so that is about 24 years, and always had the fixed rate with interest paid at the end of the term.
Now I am retired and earning less money, I have some as interest paid monthly to top up my income.

DoneWorking

Are there any penalties for withdrawing the interest each month in terms of loss of interest for a period of time 

DoneWorking

Could I set up an easy access ISA with the same bank and have the monthly interest paid into this cash ISA

Or would I not be allowed to open up two ISAs in same year 

Albermarle

DoneWorking said:

Could I set up an easy access ISA with the same bank and have the monthly interest paid into this cash ISA

Or would I not be allowed to open up two ISAs in same year 

You have always been able to open up as many cash ISA's as you like per year. However you could only add new money to one ( transfers do not count). Since April you can now also add new money to more than one.

However most fixed rate ISA's do not allow you to add more money after the initial funding window, normally 15 to 30 days, although there are a handful of exceptions.

If you read through the forum, you will see all these issues discussed on a regular basis.

DoneWorking

Albermarle said:

DoneWorking said:

Could I set up an easy access ISA with the same bank and have the monthly interest paid into this cash ISA

Or would I not be allowed to open up two ISAs in same year 

You have always been able to open up as many cash ISA's as you like per year. However you could only add new money to one ( transfers do not count). Since April you can now also add new money to more than one.

However most fixed rate ISA's do not allow you to add more money after the initial funding window, normally 15 to 30 days, although there are a handful of exceptions.

If you read through the forum, you will see all these issues discussed on a regular basis.

Thanks 
So what I'd like to do is set up a fixed 1 year cash ISA on monthly interest
Plus a easy access cash ISA with same bank
I would then like the monthly  interest from the fixed ISA  paid into the easy access ISA each month

I'd set up the fixed ISA with money transferred from another ISA which has just matured at a separate bank
Plus top up with £20k
And open the easy access with funds dropped in each month from the fixed ISA 

Is that all ok 

Thanks 

Albermarle

DoneWorking said:

Albermarle said:

DoneWorking said:

Could I set up an easy access ISA with the same bank and have the monthly interest paid into this cash ISA

Or would I not be allowed to open up two ISAs in same year 

You have always been able to open up as many cash ISA's as you like per year. However you could only add new money to one ( transfers do not count). Since April you can now also add new money to more than one.

However most fixed rate ISA's do not allow you to add more money after the initial funding window, normally 15 to 30 days, although there are a handful of exceptions.

If you read through the forum, you will see all these issues discussed on a regular basis.

Thanks 
So what I'd like to do is set up a fixed 1 year cash ISA on monthly interest
Plus a easy access cash ISA with same bank
I would then like the monthly  interest from the fixed ISA  paid into the easy access ISA each month

I'd set up the fixed ISA with money transferred from another ISA which has just matured at a separate bank
Plus top up with £20k
And open the easy access with funds dropped in each month from the fixed ISA 

Is that all ok 

Thanks 

Probably not as the monthly interest will come out of the fixed ISA, and then will count as new money being put into the easy access ISA. As you will have already paid in £20K of new money, then you will  be going over the limit.
In any case the provider will probably struggle to organise it even if you were not up against the limit 

Better to put say £18K in the fixed rate ISA and have interest paid annually, and then £2k in the easy access ISA.