Investing gross or net of interest?

edinburgh_west

Hi

I'm planning to to open a 1 year fixed term cash ISA that pays interest annually at maturity, and transfer in from previous years' ISAs.

I  want to ensure I get the full £85k protection from FSCS.  So:

1.  Can I transfer in the full £85k initially and because the account only pays interest annually my balance would be £85k all year until that maturity point so fully protected by FSCS?  OR

2.  Should I only deposit the smaller amount that will grow to reach £85k at maturity?

Many thanks for any thoughts/advice.

badger09

edinburgh_west said:

Hi

I'm planning to to open a 1 year fixed term cash ISA that pays interest annually at maturity, and transfer in from previous years' ISAs.

I  want to ensure I get the full £85k protection from FSCS.  So:

1.  Can I transfer in the full £85k initially and because the account only pays interest annually my balance would be £85k all year until that maturity point so fully protected by FSCS?  OR

2.  Should I only deposit the smaller amount that will grow to reach £85k at maturity?

Many thanks for any thoughts/advice.

If you deposit the full £85k, then from the day interest is credited until you arrange either a transfer or withdrawal of the excess over £85k, it will be ‘at risk’ ie not covered by FSCS. Clearly, this could be more of a problem if the fix was for 2 or more years with interest credited annually. 

To be absolutely sure, deposit less than £85k to leave enough headroom for interest. 
It is unlikely a major bank/building society would fail, but why take that risk? 

eskbanker

If the provider was to fail the day before maturity, would you want to be paid the ~£4K of interest that could have been accrued (but not paid) up to that date?  If so, stick to a balance of ~£81K....

edinburgh_west

badger09 said:

edinburgh_west said:

Hi

I'm planning to to open a 1 year fixed term cash ISA that pays interest annually at maturity, and transfer in from previous years' ISAs.

I  want to ensure I get the full £85k protection from FSCS.  So:

1.  Can I transfer in the full £85k initially and because the account only pays interest annually my balance would be £85k all year until that maturity point so fully protected by FSCS?  OR

2.  Should I only deposit the smaller amount that will grow to reach £85k at maturity?

Many thanks for any thoughts/advice.

If you deposit the full £85k, then from the day interest is credited until you arrange either a transfer or withdrawal of the excess over £85k, it will be ‘at risk’ ie not covered by FSCS. Clearly, this could be more of a problem if the fix was for 2 or more years with interest credited annually. 

To be absolutely sure, deposit less than £85k to leave enough headroom for interest. 
It is unlikely a major bank/building society would fail, but why take that risk? 

Many thanks for the reply - that's what I've been thinking too, I'm quite risk-averse.

edinburgh_west

eskbanker said:

If the provider was to fail the day before maturity, would you want to be paid the ~£4K of interest that could have been accrued (but not paid) up to that date?  If so, stick to a balance of ~£81K....

Many thanks for the reply - yes, that was also in my mind about the risk of losing interest to date pre-maturity.