A Basic ISA Guide
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Soldato
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Well, the real penalty would be that if you moved your ISA - would that 1% bonus interest outweigh not being able to invest £3,600 next year? As moving your ISA counts for your limit being used up. 1% extra interest on £3,000 certainly would not be better then £3,600.
I have to say the Egg one is looking pretty damned good at the moment.
Soldato
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So carrying out a transfer of an ISA is seen as opening up a new one? Are you sure about that? I thought a proper transfer meant that you move your balance and close the old account and thus keep you present year's entitlement.
I'm pretty sure this is the case, but will strive to find out.
Does the rate drop after a year, or is there a minimum monthly input?Egg if you just want to pay your money in and forget about it
Soldato
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Not sure tbh, it's been set at 6.05% for over a year now. I guess it could drop if the base rate falls but it hasn't with previous falls.
There seem to be a few misconceptions in this thread that I thought I would just clarify here - they might have been addressed but consolidation and all 
I am only talking about mini ISAs here, the maxi ISA allows up to £7000 (up to £3000 can be cash) and is to do with shares. I don't understand these and as with all products about shares it is normally best avoided as you can stand to lose so much. Maxi ISAs aren't bigged up as much as mini ISAs which are by far the best long term savings account you can have. They pay about the same interest as savings accounts but you dont pay 22%/40% tax on it.
Once £3000 is put into an ISA it is effectively marked as "ISA money", as is any interest that you earn on that. Any "ISA money" is tax free provided you don't ever break the rules of the ISA, like put too much money in or open multiple ISAs in a year. Whilst you want to avoid this its not the end of the world as you are getting the same rate as a normal savings account then.
Whilst you can have multiple ISAs there seems to be very little point, you can transfer money from one ISA to a newly opened ISA at any point (remember the rule about only opening 1 ISA a year though). So lets say I get an ISA with IceSave who have a very good rate of 6.1% at the moment. Next tax year, if they drop this then I go and open a ISA at a new provider and tell them to transfer in my ISA from IceSave. Hypothetically lets say that this is Egg who are paying 6.2%. Once the money is "ISA money" it stays that way even moving it between providers. I can still pay in £3,600 (because the limit goes up) next year! THIS IS NOT THE SAME AS WITHDRAWING FROM THE ICESAVE ISA AND THEN DEPOSITING IN THE EGG ISA! That will use the £3000 of the £3600 limit. So moral is transferring is not the same as withdrawing/depositing
Ric.
I am only talking about mini ISAs here, the maxi ISA allows up to £7000 (up to £3000 can be cash) and is to do with shares. I don't understand these and as with all products about shares it is normally best avoided as you can stand to lose so much. Maxi ISAs aren't bigged up as much as mini ISAs which are by far the best long term savings account you can have. They pay about the same interest as savings accounts but you dont pay 22%/40% tax on it.
Once £3000 is put into an ISA it is effectively marked as "ISA money", as is any interest that you earn on that. Any "ISA money" is tax free provided you don't ever break the rules of the ISA, like put too much money in or open multiple ISAs in a year. Whilst you want to avoid this its not the end of the world as you are getting the same rate as a normal savings account then.
Whilst you can have multiple ISAs there seems to be very little point, you can transfer money from one ISA to a newly opened ISA at any point (remember the rule about only opening 1 ISA a year though). So lets say I get an ISA with IceSave who have a very good rate of 6.1% at the moment. Next tax year, if they drop this then I go and open a ISA at a new provider and tell them to transfer in my ISA from IceSave. Hypothetically lets say that this is Egg who are paying 6.2%. Once the money is "ISA money" it stays that way even moving it between providers. I can still pay in £3,600 (because the limit goes up) next year! THIS IS NOT THE SAME AS WITHDRAWING FROM THE ICESAVE ISA AND THEN DEPOSITING IN THE EGG ISA! That will use the £3000 of the £3600 limit. So moral is transferring is not the same as withdrawing/depositing
Ric.
But am i correct in saying that if i have only £500 savings and all i will save is the tax i would pay on its interest by having an ISA, i would only save a matter of pennies over a year?
Soldato
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Cheers for that, |Ric|. Would disagree slightly about the shares ISA, obviously you can lose a lot, but do the research and it's likely to outperform a cash ISA should the market conditions be favourable. Obviously, this is probably not the case at the moment 
Soldato
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basic rate tax on interest is 20%. 6% of 500 is £30 so you could lose £6. Still, for filling out a couple of forms, £6 is a pretty good return.
Cheers for that, |Ric|. Would disagree slightly about the shares ISA, obviously you can lose a lot, but do the research and it's likely to outperform a cash ISA should the market conditions be favourable. Obviously, this is probably not the case at the moment
I thought I might get that reply
. Just simplifying it as in my mind shares aren't a valid savings strategy. Sure you can play with them but you would be a mad man in my eyes to do it with your savings.Another point that I forgot to mention. There is some talk that having all your money in one ISA gets you more interest due to the compound nature of it. This isn't true. The only advice is put your money in the ISA that has the highest interest rate, have no loyalty to your current bank, and move as often as you can be bothered to keep the top rate.
To demonstrate that it doesn't matter where your money is:
Consider £3000 in ISA 1 in Year 1 @ 6%.
Then £3000 in ISA 2 in Year 2 @ 6%
At the end of year 2:
ISA 1 = 3000 * 1.06 * 1.06 = 3370.80
ISA 2 = 3000 * 1.06 = 3180
Total = 6550.80
Now had I put that money in ISA 1 instead of ISA 2:
ISA 1 = ((3000 * 1.06) + 3000) * 1.06 = 6550.80
I.e. the same! It shouldn't be any great surprise as you are dealing with percentages and 6% of 100 is the same as 6% of 50 plus 6% of 50 but there is a numerical example to prove it.
Thus stick the money where you get the most tax and don't worry about moving it frequently. Follow the largest % interest rate as that is the only thing that matters.
Also, even though interest is paid yearly for some banks when you transfer the ISA they work out how much interest you have up to the point at which you transfer it. Then give it to you. So *very* approximately if you have it in for 9 months you would get 3/4 of the total interest for the year. Then the new account would pay the interest for the last 1/4. No money lost at all.
(This is simplified, if you investigate it thoroughly and know how the interest is compounded over the year you might argue. It is correct, just simplified it so it doesn't scare too much. ISAs are great so don't be scared
)Of course don't change your ISA more than once a year as that breaks the rules.
Ric.
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To very simply clarify a Cash ISA is basically a bank account with a tax efficent wrapper around the outside of it.
Instead of a normal bqank savings account where you get say 6% interest minus savings tax (@ currently 20% of the interest) therefore giving you 4.8%, a cash isa you would get the interest rate without the deduction of any tax.
It is limited as previously mentioned but worthwhile always using your ISA allowance each year as it can amount of a large chunk of money that in future years can be taken tax free on enchasment etc.
I would always recommend to any clients of mine that they utilise their FULL isa allowance each and every tax year where possible.
The majority of the information on this thread so far is only really dealing with CASH isa's and not the stocks and shares ISA.
Remember that should you put say £3k into an ISA and then withdraw it 3 months later in the same tax year you CAN NOT put it back in during the same tax year as you have used your amount for that year despite the fact you have then drawn it out.
Instead of a normal bqank savings account where you get say 6% interest minus savings tax (@ currently 20% of the interest) therefore giving you 4.8%, a cash isa you would get the interest rate without the deduction of any tax.
It is limited as previously mentioned but worthwhile always using your ISA allowance each year as it can amount of a large chunk of money that in future years can be taken tax free on enchasment etc.
I would always recommend to any clients of mine that they utilise their FULL isa allowance each and every tax year where possible.
The majority of the information on this thread so far is only really dealing with CASH isa's and not the stocks and shares ISA.
Remember that should you put say £3k into an ISA and then withdraw it 3 months later in the same tax year you CAN NOT put it back in during the same tax year as you have used your amount for that year despite the fact you have then drawn it out.
I have an ISA with egg and its really easy to move money in and out if anyones thinking of setting one up with them.
What I have done is -
Spare cash - Fill up isa for tax year.
Still spare cash - Move it to an internet savings account
Left over - Keep in current account for everyday spending.
What I have done is -
Spare cash - Fill up isa for tax year.
Still spare cash - Move it to an internet savings account
Left over - Keep in current account for everyday spending.
Yeah - what I'd find really useful is some info on stocks and shares ISAs. I've been investing in cash ISAs for over 10 years now, but until now I've never really been in a position to consider investing much more than £3k/year.
Howdy all, I'm one of the guys you speak to when you go into a bank or building society. Some good info and all correct. A couple more facts:
From the new tax year the names are changing a little bit, there'll be a mini cash isa, a mini stocks and shares isa, and a maxi stocks and shares isa.
You can put a max of £3600 into each of the minis from the new tax year or £7200 into a maxi. As well as only being able to open 1 ISA a year, you can only pay into one as well. So say in 2004 you opened one with Barclays, and in 2005 you opened another one with Britannia and had both running at the same time. You couldnt in 2006 then go and pay £1500 into the Barclays and £1500 into Britannia. The way this work is you 'subscribe' to an ISA every year.
Money invested in a stocks and shares ISA cannot be changed into a cash isa. However the opposite is available - moving a cash isa to a stocks and shares.
Stocks and share ISAs will likely not be directly with the bank or building society but with a financial arm. e.g AXA or Legal & General, so they're a little more in depth than the cash ones. Also, the market or unit's invested into are different depending on the level of risk you're willing to take. (This will all be explained in depth in a meeting with a financial adviser).
If you have no long term spending plans for the money (10yrs or more) then a stocks and shares ISA is generally better. Although not a guide to the future, there has never been a 10 yr period where cash has earned more than shares (at least what I've been told anyway, thats a strong statement and I'm no expert). I see so many people who a few years in see the markets fall a bit (like now) and pull out, making a big loss. If they hold on it'll recover (hopefully!) and then continue to grow again.
Cash ISAs are better than general 'high rate' savings account for interest, even before the tax free part comes into it. That's why I'd recommend putting 3k (or 3.6 from now on) every single year.
People who put the 9k in their TESSA ISA (early version of the ISA that allowed a lump of up to 9k to go straight in) as well as topping it up every year and have a balance of around 30k are getting over 1800 quid in takr home interest every year. Free money!
From the new tax year the names are changing a little bit, there'll be a mini cash isa, a mini stocks and shares isa, and a maxi stocks and shares isa.
You can put a max of £3600 into each of the minis from the new tax year or £7200 into a maxi. As well as only being able to open 1 ISA a year, you can only pay into one as well. So say in 2004 you opened one with Barclays, and in 2005 you opened another one with Britannia and had both running at the same time. You couldnt in 2006 then go and pay £1500 into the Barclays and £1500 into Britannia. The way this work is you 'subscribe' to an ISA every year.
Money invested in a stocks and shares ISA cannot be changed into a cash isa. However the opposite is available - moving a cash isa to a stocks and shares.
Stocks and share ISAs will likely not be directly with the bank or building society but with a financial arm. e.g AXA or Legal & General, so they're a little more in depth than the cash ones. Also, the market or unit's invested into are different depending on the level of risk you're willing to take. (This will all be explained in depth in a meeting with a financial adviser).
If you have no long term spending plans for the money (10yrs or more) then a stocks and shares ISA is generally better. Although not a guide to the future, there has never been a 10 yr period where cash has earned more than shares (at least what I've been told anyway, thats a strong statement and I'm no expert). I see so many people who a few years in see the markets fall a bit (like now) and pull out, making a big loss. If they hold on it'll recover (hopefully!) and then continue to grow again.
Cash ISAs are better than general 'high rate' savings account for interest, even before the tax free part comes into it. That's why I'd recommend putting 3k (or 3.6 from now on) every single year.
People who put the 9k in their TESSA ISA (early version of the ISA that allowed a lump of up to 9k to go straight in) as well as topping it up every year and have a balance of around 30k are getting over 1800 quid in takr home interest every year. Free money!
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Question (which could be answered if I go to the bank but nevermind):
I have money in a fixed rate ISA which matures in November I think (I can't touch this until then). Can I put any money into any other sort of ISA this April? (the ISA I have has 2K in I think, maybe a touch more).
I have money in a fixed rate ISA which matures in November I think (I can't touch this until then). Can I put any money into any other sort of ISA this April? (the ISA I have has 2K in I think, maybe a touch more).
Sorry, why? It makes no difference. As an example:
If you have an account with £6000 at 6%, you get:
£6,000 Year 1
£6,360 Year 2
£6,742 Year 3
£7,146 Year 4
If you have three accounts with £2000 at 6%, you get, per account:
£2,000 Year 1
£2,120 Year 2
£2,247 Year 3
£2,382 Year 4
£2,382 × 3 = £7,146. Exactly the same.
Likely not, but first goto your provider of the Fixed ISA you have as you still have £1000 allowance. They may allow you to pay it in. You might also be able to pay the rest into an instant access ISA but with the same provider, though this is a bit of a grey area.