Flexible ISA Interest Harmonica89

#1
Hi there,



I originally had a sum of over £10,000 built up in my ISA, carried over for the first month of the current tax year. I then bought a flat and started saving again in that ISA and have built up around £4000.



My current ISA now has a very poor interest rate of 0.25% AER but my current account has an interest rate of 3% AER on balances between £3000 and £5000.



My question is does it make sense to transfer money into my current current account to take advantage of this better rate? Do all accounts give tax free interest now?



How is the interest in the ISA calculated? Will I lose the interest or tax free benefits if I withdraw and don't replace funds in the flexible ISA before the end of the tax year?

#2



My question is does it make sense to transfer money into my current current account to take advantage of this better rate?
Originally posted by Harmonica89


Yes, it makes sense to move it to your current current account, or a new current account, or other accounts that pay higher interest than your ISA(such as regular saver accounts) .




Do all accounts give tax free interest now?


The interest paid by any non-ISA bank account is, officially, taxable. However, everyone who is a basic rate taxpayer has a personal savings allowance to allow them to receive a total of £1000 of taxable interest every year tax free and only worry about paying tax on anything over that. If you are a higher rate taxpayer the allowance is £500.



You are not going to earn £500 or £1000 interest a year on your £4k, so if you don't have plenty of other money somewhere else that's giving you large amounts of interest, you can probably think of your current account as paying you 'tax free', even though it is not tax exempt like an ISA.






How is the interest in the ISA calculated?


Like any other account. The amount of money in the account on a particular day, multiplied by the interest rate that it pays. In your case, half a percent if you leave it a full year. Less than half a percent if you leave it less than a full year.






Will I lose the interest or tax free benefits if I withdraw and don't replace funds in the flexible ISA before the end of the tax year?


You won't lost the interest you have earned because you have already earned it - it's yours.



If you don't put the money back in an ISA by the end of the tax year, it won't be in an ISA. As it's not in an ISA, new interest that you earn on the money will no longer be tax exempt. But as mentioned above, you are unlikely to be paying any tax on it. And even if you did pay tax on it, it's better to earn 3% or 5% and pay tax, than earn 0.5% tax exempt.



Next year the annual ISA subscription limit is going up to £20k a year so you are not going to have any problem putting your money back into an ISA when you want to.

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