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Category: Savings Date: 11/19/2010
Transferring your ISA
The Cash ISA: tax saviour of the saving classes! They are a great idea aren't they, these cash ISAs? They are one of the few legal things you can do with your money to avoid tax, and one of the most popular (as a bank account, they are second only to current accounts).
But, some of those rascally banks and building societies have sullied this most utopian of savings ideas. They'll hook you in with mind-blowing rates of interest only to reduce them later when you're not looking! They gamble on you not being bothered to check your interest rate and not realising that you can transfer your ISA funds to another account in order to earn the most out of your money that they can.
Even if you are bothered to check your interest rate and know you can transfer your ISA, you can end up boldly going to the outer reaches of a galactic-size website to find out what your account is actually paying (particularly if your account is no longer available to new customers). Worse still, if you want to transfer your ISA, banks and building societies can drag their feet, like a child grumpy that they have been caught with one hand in the cookie jar.
Happily all that is about to change!
The Office of Fair Trading (OFT) has recently taken a look at this behaviour and has introduced some new guidelines. The two biggest points are:
From 31 December 2010, Cash ISA transfers must happen within 15 days. You continue earning interest during the transfer period and, if they take longer, your old bank or building society must pay you interest at the rate of your new ISA. At present, transfers can take the best part of a month and, in some instances, several months, just to move money from one account to another!
From 2012, Interest rates will have to be clearly published on all ISA statements. Yes, amazingly at present only 15% of ISA providers do this. It's almost like they don't want you to know isn't it?
How to go about transferring your Cash ISA
The important thing to remember if you want to transfer your ISA is do not close your account and withdraw the money. Once you find a new provider, you will need to fill out an ISA transfer form from your existing provider. Then your existing provider and your new provider will liaise with each other. The reason it needs to happen this way is to shield your tax-free ISA allowances. The minute you withdraw your money it will lose its tax-free status – you will then only be allowed to pay in up to £5,100 per tax year into an ISA, rather than your full balance, which can be a great deal higher.
Why transfer your Cash ISA?
By and large, loyalty is not rewarded with ISAs. The emphasis is always on bringing new customers in, not necessarily on paying the most competitive rate possible to existing customers. Luckily, you can counter this lack of fidelity with an ISA transfer. The fact that banks and building societies can get away with dwindling the rates on ISAs (and other savings accounts for that matter) for existing customers is testament to the fact that the majority of people don't exercise their right to transfer.
If you are a taxpayer, your first port of call when saving should always be a Cash ISA and this becomes more and more important with the more tax that you pay. Just look at the rates you would have to earn on other savings accounts to earn the equivalent ISA rate.
Cash ISA vs. Savings Account Comparison
Cash ISA Gross Rate
Equivalent Gross Rate needed to at lease equal your return if you are a Basic Rate Taxpayer
Equivalent Gross Rate needed to at least equal your return if you are a Higher Rate Taxpayer
Equivalent Gross Rate needed to at least equal your return if you are an Additional Rate Taxpayer
0.10%
0.13%
0.17%
0.20%
0.25%
0.32%
0.42%
0.50%
0.63%
0.84%
1.00%
0.75%
0.94%
1.25%
1.50%
1.67%
2.00%
1.57%
2.09%
2.50%
1.88%
3.00%
1.75%
2.19%
2.92%
3.50%
3.34%
4.00%
2.25%
2.82%
3.75%
4.50%
3.13%
4.17%
5.00%
2.75%
3.44%
4.59%
5.50%
6.00%
3.25%
4.07%
5.42%
6.50%
4.38%
5.84%
7.00%
4.69%
6.25%
7.50%
Monitor the rate you are getting. Most interest rates (even for accounts that are closed to new business) are available online. It might take some digging to find, but once you're there save it to your favourites and review at least once a month.
Something that must be said as well is that providers are upfront about some things at the outset. If you take out an ISA with a bonus or a Fixed Rate ISA, there will be a specified period after which your introductory rate ends. Set yourself a reminder, whether it's a note on your calendar or an alarm on your phone or computer, don't be complacent!
Find the best savings account for you - Compare ISA transfers
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.