What happens in the 2nd period of an ISA? (UK)

Question

I'm sorry if this is a duplicate, I tried to search for similar questions but I'm not sure what the correct terminology is!

I've been curious about an ISA for some time now and it seems that they are mostly a waste of time. Using comparison websites I have determined the expected pay-out for a single year to be rather pathetic.

If I open and fill an ISA, then leave the account alone for an entire year, will I then be able to add an additional £[Insert ISA limit here] to the original money I put in the account? Will the full sum of £[Last years limit] + £[This years limit] that is in the account have interest paid on it?

Will the account be closed at the end of the period regardless?

The only way I can see an ISA being of any worth is by building up a substantial amount this way, but you would need so much cash laying around to max the ISA year on year.

Answer 1

If I open and fill an ISA, then leave the account alone for an entire year, will I then be able to add an additional £[Insert ISA limit here] to the original money I put in the account?

Yes, you can.

Will the full sum of £[Last years limit] + £[This years limit] that is in the account have interest paid on it?

Yes, it will.

Will the account be closed at the end of the period regardless?

No. The account would only be closed if you requested it to be closed. Otherwise it would sit there with the original balance in it earning interest at the stated rate.

The only way I can see an ISA being of any worth is by building up a substantial amount this way, but you would need so much cash laying around to max the ISA year on year.

Just think of an ISA as like a completely normal savings account except that you don't pay tax on the interest, and there is a limit to how much you can deposit in any given year.

Right now, while interest rates have been low for a while, the savings rates on any account (including ISAs) are not desperately attractive; additionally, with the recent changes to how interest on normal savings accounts are taxed, ISAs are not quite such a big deal as they used to be.

If you look back to a time when interest rates were around 5%, a higher rate tax payer with £50,000 in a normal savings account would earn £2500 interest in a year, on which they would pay £1000 in tax. That made an ISA a very attractive option indeed.