ISA novice HELP!

mummybear3

I posted on the MFi3 board as I was thinking of overpaying £50-£100 a month and wasn't sure if this small amount was worth it, I got encouraging replies but it also mentioned ISA so I wondered if I could ask a few questions?
Our mortgage is for about £77,000 remaining term is 19 years. At the moment we are on a fixed rate of 4.95% which expires in March next year. I know in the scheme of things our rate is quite a good one but doubt if the next one will be so good!
This is where Im confused (easily done) do ISAs return interest on what you put in each month or is it yearly and I know there is always a risk so is it better to play safe with overpayments or even a higher interest saving account? As i renew next March would I be wiser to overpay so my balance is less in March as Im assuming the Isa is tied until at least April - or is it longer?
Im sorry this is so longwinded but we finally see an end to financially struggling and want to make the best of our money.
Looking forward to lots of replies.
Thanks m

macca64

You can contribute upto £3,600 to the cash part of an ISA, and the interest is tax free and there is no risk to your capital.

It sounds like you need a variable rate isa, rather than a fixed rate. I would look at Abbey/A&L at 6.25% or Icesave at 6.1% alternatively Egg offer 6.05%, all rates are higher than your mortgage rate.

You could then pay this lump sum off the mortgage when your deals ends, alternatively if you can secure a mortgage rate lower then your isa, you could leave the money where it is, but it's up to you.

I calculate that you will probably make around £8 more interest in the isa than you pay on the mortgage.

Hopefully this will help you make your decision.

mummybear3

Thanks for your reply macca 64, there seems to be so many decisions! So money is not tied into the ISA, I always thought it was, so I can pay what I can in from now then come March decide if I want to put it towards lowering my mortgage or let it continue to grow. I think thats best because my interest rate is quite low.

Sorry to have so many queries.
TIA

macca64

There are only ties ins for fixed rate isa's, but even then you can normally access your money but it is subject to a loss of interest.

Yes you can do as you say, pay in what you can now to the isa then decide what to do in March.

mummybear3

So I think I will start an ISA but I have one more question, yes Im totally ignorant! If I go for the A&L at 6.25% which I know is tax free, does that make more in interest over a year than a savings account with say pays 7%?
Thanks for any replies
m

Lokolo

Are you are higher rate or normal rate?

7 * 0.8 = 5.6% <--- normal
7* 0.6 = 4.2% <--- higher

Thats the rate you will get with tax deducted.

mummybear3

Im normal rate so ISA looking better.
Thanks I need things simplified!
m

mummybear3

Thanks to all who replied and gave me advice, I set up my ISA today, went with Barclays Tax haven product so heres hoping good rate continues. Barclays are running behind with an influx of applications so wont actually have account set up till May but they will backdate all interest so will have to be patient!
Keeping everything crossed that I can continue saving.#m