We all know that Cash ISAs (Individual Savings Accounts) can be a great way of sheltering interest, subject to the normal rules of course, from the clutches of the taxman.
ISAs are big business: over 17 million Britons hold a total of £143 billion in Cash ISAs. However, recent investigations by the Office of Fair Trading (OFT) are set to ensure a fairer deal for ISA savers. As with other types of deposit account banks and building societies have a nasty habit of offering an attractive upfront rate enticing you to invest your hard earned savings only to quietly drop the rate in the future.
This infuriating practice can seriously damage your savings, however there is a way you can hit back; consider transferring your Cash ISA to an alternative provider. We shop around for all other types of savings accounts, why should a Cash ISA be any different?
The key is to remember to compare interest rates on a regular basis, don’t rely on your bank or building society to tell you when rates have dropped.
The main reason you might want to transfer your Cash ISA is simply to get a better rate of interest.
As with normal deposit accounts there are a range of Cash ISAs available to suit every savings need, from those offering instant access to fixed rates.
We also see clients looking to consolidate their ISA holdings. If a number of Cash ISAs have been taken out, possibly with different bank or building societies, the situation can become confusing and hard to keep track of. Consolidating your Cash ISAs can often reduce the complexity and can sometimes see the interest rate rise due to the fact many banks and building societies offer better rates for higher balances.
What are the catches?
Providing you follow some pretty simple rules the catches are surprisingly few.
The golden rule is not to cash in or surrender your ISA but to transfer it. If you cash in or surrender an existing ISA and then try and pay the proceeds into a new one, this would count as a new contribution which is limited to £5,760 in the current tax year.
The transfer process can be slow and there are no deadlines governing how long a transfer should take to complete. The OFT has recommended that the time it takes to complete a Cash ISA transfer should be reduced and Consumer group Which? wants the transfer process to take no longer than 10 days. These changes would be welcomed, however in the meantime the process can be cumbersome but don’t be put off, remember the aim of the transfer is to get your money working harder for you.
There are some other rules that you will need to abide by in addition to the above, these are summarised below.
Cash ISA transfers can take place as often as you like, although not all ISAs will accept transfers in.
You can transfer a Cash ISA to a Cash ISA but you cannot transfer a Stocks & Shares ISA, also known as an Equity ISA, to a Cash ISA.
If you want to transfer a Cash ISA from the current tax year the whole ISA must be moved, however you can split previous years’ allowances between different Cash ISAs. Be careful though as not all banks and building societies will accept partial transfers.
Although there is a limit on new subscriptions, £5,100 in the current tax year, there is no limit on the amount that can be built up in a Cash ISA or indeed transferred between providers.
Where should I transfer my Cash ISA to?
Firstly you need to know the interest rate that you are getting at the moment, this usually be found on the website of the bank or building society that holds your Cash ISA, alternatively pick up the phone and ask them.
Once you have satisfied yourself that your current rate is not competitive then use our best buy tables to find better rates of interest, these can be found by clicking the following links:
Alternatively use our cash management service, where we will search the Cash ISA market on your behalf and suggest accounts that may be suitable to you, more details can be found by clicking here.
Select the ISAs you are most interested in and follow the links through to the website of the bank or building society you would like to transfer to, there you will find full instructions how to complete your transfer.
When considering which provider to transfer your Cash ISA to, remember the rules of the FSCS (Financial Services Compensation Scheme), broadly speaking this provides you with coverage up to £85,000 with each deposit taker, more information about the FSCS can be found here.
Cash ISAs are no different from other types of deposit account in that rates can change and you need to spend time checking which are the best for you, don’t rely on your existing provider to let you know when the rate has dropped.
Check your interest rates regularly, compare the rate you are getting to other accounts and follow the rules we have highlighted to get your savings working harder for you.