Using a savings account to add interest to Cash ISA

hougtimo

Ok, well I've been having a think and I reckon I've worked out a way to maximise the amount of interest I would be paid from my ISA.

The ISA pays 5.8% annually, so really I could have my money elsewhere for the majority of the year in a savings account which pays interest monthly etc... earning some extra interest.

I know that I'd be taxed for any interest paid through a savings account, but it would still add some value to my money...right?

Are there any drawbacks of doing this? And does it work!? - seems to check out in theory.

Any advice would be greatly appreciated.

Thanks,

Tim

Baldur

hougtimo wrote: »

The ISA pays 5.8% annually, so really I could have my money elsewhere for the majority of the year in a savings account which pays interest monthly etc... earning some extra interest.

Not really sure what you're getting at but if the money is not actually in your ISA account, then it's earning nothing as far as that ISA is concerned.

You would need to be receiving 7.25% from a normal savings account (as a standard rate taxpayer) or over 9.6% as a higher rate taxpayer to achieve 5.8% after tax.

hougtimo

Baldur wrote: »

Not really sure what you're getting at but if the money is not actually in your ISA account, then it's earning nothing as far as that ISA is concerned.

You would need to be receiving 7.25% from a normal savings account (as a standard rate taxpayer) or over 9.6% as a higher rate taxpayer to achieve 5.8% after tax.

I think I've confused myself really.

The point I'm trying to get at is that if I have a lump sum of money, I will get the same interest return with it in my ISA if I put it in today or 1st April 2009? Please correct me if i am wrong there (on my T&C is says interest is paid anually).

Basically, I thought that if I were to put that money into a savings account (8.5%) which paid interest monthly then I would be building that lump sum up a bit and then transfer it to my isa at the beginning of april 2009...

However does my isa calculate interest montly but pay yearly? If it does then I'm waffling and there is no need to listen / read :P

surreysaver

Interest might be paid annually, but you have to have the money in it for a year to get a year's worth of interest! If you have the money in it for, say, a month, you will get one twelveth of the year's interest.

Baldur

hougtimo wrote: »

I think I've confused myself really.

The point I'm trying to get at is that if I have a lump sum of money, I will get the same interest return with it in my ISA if I put it in today or 1st April 2009? Please correct me if i am wrong there (on my T&C is says interest is paid anually).

Basically, I thought that if I were to put that money into a savings account (8.5%) which paid interest monthly then I would be building that lump sum up a bit and then transfer it to my isa at the beginning of april 2009...

However does my isa calculate interest montly but pay yearly? If it does then I'm waffling and there is no need to listen / read :P

Your ISA will only pay any interest while there is money in it, i.e. if you have £3,600 in it today and leave it there for a full year, you will receive the advertised AER of 5.8% or about £208.80 interest (assuming that the rate hasn't changed in that year) at the end of that year - if you pay it in on 1st April 2009, you will receive (at most) 4 or 5 days-worth of interest on it (at around 57 pence per day, again assuming that the interest rate hasn't changed by then).

hougtimo

surreysaver wrote: »

Okay - seems I was misinformed when I took out the isa!!!

Baldur

hougtimo wrote: »

I was advised by a contact at HSBC that I would pay in a maximum of £3600, even if I paid it in on the 3rd of April 2009 I could expect in the region of £200 interest...is this not the case?

No - see above.

hougtimo

Baldur wrote: »

No - see above.

I think we posted at the same time, i edited my reply when i saw yours.

I was either told incorrectly by HSBC or didn't understand them properly.

Baldur

hougtimo wrote: »

I was either told incorrectly by HSBC or didn't understand them properly.

You can hardly expect any institution to pay you interest on money which is deposited elsewhere - they would all be 'doing a Northern Rock' if that was the case!

hougtimo

Baldur wrote: »

You can hardly expect any institution to pay you interest on money which is deposited elsewhere - they would all be 'doing a Northern Rock' if that was the case!

Hence why I questioned it at the time...but hey, we never stop learning do we

RayWolfe

I doubt you were told that a deposit put in a few days before the interest was payable would attract a whole years worth of interest. I suspect you misunderstood what you were being told.