With interest rates low, it’s vital you move your cash ISA to the best deal. New rules mean it is getting easier.
With savings rates at all-time lows, thanks to the Bank of England base rate being anchored at 0.5 per cent, it’s vital you take time to seek out the most profitable savings accounts.
Any saver’s first port of call should be their cash ISA (individual savings account) – this pays interest with no tax deducted, as opposed to standard accounts which have tax deducted at 20, 40 or 50 per cent, depending on which income tax band you’re in.
You can put up to £5,100 into a cash ISA in the current financial year, which ends on 5 April.
But it’s also vital to make sure any existing ISA holdings are working as hard as possible: remember there’s no guarantee that an account you opened a couple of years ago is still paying a competitive rate.
Now is a good time to look at your ISA holdings to check what rates you’re getting, and try to find a better deal.
Transferring your old ISA should be a straightforward process: the banking industry has recently introduced new rules to make transfers run more quickly and smoothly.
Before you transfer…
A couple of words of warning before you try to switch your ISA: firstly, any transfer has to be carried out by the two banks involved. You shouldn’t just withdraw cash from one account and try to deposit it in another.
If you do this, the deposit will be treated as new money for the purposes of the annual ISA allowance, and will be subject to the £5,100-a-year limit.
So if you’d already used all of this year’s allowance, you wouldn’t be allowed to deposit the withdrawn money in another ISA.
Secondly, bear in mind that not all ISAs accept transfers from existing accounts: some providers stipulate their deals are for “new money only”. But don’t worry, there are still plenty of great rates available for transfers.
If you’re transferring a cash ISA you opened in the current tax year (since the last 6 April), you have to move the whole amount. But earlier years’ ISAs can be transferred in chunks of your choosing.
How to transfer your ISA
Problems in recent years with slow transfers have led banks to smarten up their acts with new rules over how ISA switches should proceed.
In the past, savers have missed out on top rates because their applications haven’t been processed quickly enough. And in some cases, customers have lost substantial amounts of interest while their transfer was in limbo “between” banks.
New rules that have come in this year say that transfers should take no more than 15 working days to complete, and interest should continue to be paid during the transfer period.
Here’s how the transfer should work:
Step 1: Compare rates on ISAs to find the best deal for your switch: and make sure the bank or building society accepts transfers on this particular account.
Step 2: Contact the provider of the account you wish to move to. They will give you a transfer form to complete, and possibly also an application form for the new account.
Step 3: Your new bank should process your paperwork and then contact your current ISA provider to arrange to transfer. Either bank may need more information from you, for example to help identify your account. Provide this as promptly as possible to avoid any delays.
It is up to your new ISA provider to chase up the old bank if there are any hold-ups: industry guidelines say this should be done after 11 working days if the old provider hasn’t responded by then.
Step 4: Your money should be credited to the new account within 15 working days, and your new provider will backdate interest to whenever your old provider stopped paying it.
Banks guarantee to pay interest at the new ISA rate from the 16th day after the transfer was initiated at the latest – even if delays mean the switch takes longer.
But if you aren’t happy you should complain and perhaps to both providers if you aren’t sure which is responsible for any delays.
If you don’t get a satisfactory response from either of them, take your case to the Financial Ombudsman.
