Interest beyond anual savings limit - help please.

Patrick3001

Good morning all,

I currently have an ISA with Natwest - it's pretty useless and I'm looking to transfer. However, what I've noticed is that many of the ISA's I have been looking in to need a current account into which the interest earnit is tranferred monthly/annually. By comparison in my natwest ISA the interest just gets added to the ISA - meaning i can get significantly more than £3600 in each year.

So my question, am I earning interest on that interest - effectively allowing me to sneak significantly more than the limit into the account, or will I infact be earning nothing, or at least being taxed on the additional interest?

Would this interest being held with the ISA be a reason to stick with Natwest?

Hope this all makes sense, and that you are able to help.

Trying_to_be_good

One of the benefits of ISAs is that the compound interest is also tax free when it's paid into the ISA account - you won't be charged tax on that interest.

But if you have the interest paid into a non-ISA account, compound interest (i.e. interest on that interest) WILL be taxed. None of my accounts have ever required me to have the interest paid outside the ISA, but maybe it's a new thing.

In the ISA wrapper, not taxed, outside the wrapper, is taxed.

Baldur

Can't say that I've ever had or even noticed a Cash ISA which requires interest to be paid into a different account - that would defeat the primary objective of a Cash ISA, i.e. building up savings through the tax-free capital & interest.

RayWolfe

Don't think the OP is correct to say interest MUST be paid to an external account. I take a great interest in such matters and have never seen it.