ISA Interest Withdrawal

DMSUK

Hi all.

First post so be nice, and I know this is stupid question but I have not got any where with talking to trading 212.

Early last year after reading the recommendation on MSE about Trading 212 cash ISAs, deposited 20k, come April I put in another 20k. This has been growing quit nicely, and I wanted to withdraw some of the interest, when I did this my invested amount dropped instead by the some I had removed. 

So I started an in APP conversation with real people (not bots) about this. They stated I could withdraw my interest anytime but my invested amount would drop which meant I could top it up later, which is not what I wanted. I argued that I am not withdrawing interest then if my invested amount dropped. They proceeded to tell me that this is how it works as they don’t know what is interest and what isn’t, which is obviously utter BS as it is calculated daily.

Could someone be kind enough to explain this to me, I am not a stupidly person and with my engineering background I have a very logical mind and tend to deal in black and white. This makes no sense to me that I cannot just withdraw my interest as clearly anything above 40k is interest earned.

I appreciate anyone’s time for clarifying this for and/or explaining if I am going about this the wrong way.

thanks in advance

Darren

eskbanker

There aren't separate balances maintained for capital and interest, it all just becomes one pot, so any withdrawal is from that headline aggregate figure.

If, say, you'd earned £1K on your £40K, you now have a balance of £41K, and if you withdraw £1K you then have a revised balance of £40K - what do you see as the significance of the composition of that £40K?

DMSUK

Hi thank you for the quick response, that’s pretty much what I had done, however although I was left with the 40k balance my sum invested for that year dropped to 19k, there for I assume for the ISA year interest would now only be on the 19k at that point. So how do you ever get your interest only without affecting the amount invested, and if I have put back in what I have just withdrawn to get back to full interest capability I have not actually made any money I can use.

thanks again

Darren

eskbanker

DMSUK said:

Hi thank you for the quick response, that’s pretty much what I had done, however although I was left with the 40k balance my sum invested for that year dropped to 19k, there for I assume for the ISA year interest would now only be on the 19k at that point. So how do you ever get your interest only without affecting the amount invested, and if I have put back in what I have just withdrawn to get back to full interest capability I have not actually made any money I can use.

As you've already accepted, interest is calculated on daily balances, so for each day you have a balance of £41K, that'll be used for the calculation, and then if it reduces to £40K then that's the figure on which interest is based, so you're really not losing out here!

jimjames

DMSUK said:

So I started an in APP conversation with real people (not bots) about this. They stated I could withdraw my interest anytime but my invested amount would drop which meant I could top it up later, which is not what I wanted. I argued that I am not withdrawing interest then if my invested amount dropped. They proceeded to tell me that this is how it works as they don’t know what is interest and what isn’t, which is obviously utter BS as it is calculated daily.

If you don't want the ability to replenish funds that you've removed then you'd be better off with a ISA that isn't flexible. However for most purposes a flexible ISA is far more useful as you can add money back in that you've removed - whether that is an amount equivalent to interest earned or any other sum you want to withdraw. There is no distinction between capital and interest once it's been added, there is just a total balance of the account.

refluxer

DMSUK said:

Hi thank you for the quick response, that’s pretty much what I had done, however although I was left with the 40k balance my sum invested for that year dropped to 19k, there for I assume for the ISA year interest would now only be on the 19k at that point. So how do you ever get your interest only without affecting the amount invested, and if I have put back in what I have just withdrawn to get back to full interest capability I have not actually made any money I can use.

The fact that your stated ISA allowance usage for this tax year has dropped to £19k is a good thing - it's because the ISA is 'flexible' which means that you're able to pay that £1k back into the ISA before the end of the current tax year if you wanted to. If it wasn't flexible then you wouldn't be able to do this.

As mentioned above, when interest is added to the same ISA then the total balance just increases by that amount and it doesn't matter how much of it comprises of your deposits or how much is from interest. Any subsequent interest is earned on the total amount (the '£19k' quoted is just for your information so you know how much of the current tax year's ISA allowance you've used)