🔔 Ditch and Switch! What to do with Existing Cash ISAs

With cash ISA rates as low as 0.10% in some cases, it is important to vote with your feet and switch for a better return. For help looking at the best places to transfer your existing ISA, read on.

It is a sad fact that interest rate cuts that affect existing account holders are now a significant part of the savings landscape. Since Funding for Lending was introduced in August 2012, savers have seen the interest rates on their accounts cut left, right and centre and cash ISAs are no exception.

This means that there are some frankly dreadful interest rates out there and savers who are currently sitting in these accounts need to ditch them as soon as possible and switch to a higher paying alternative.

One of the lowest paying cash ISAs at the moment is the Variable Rate ISA Saver from Halifax paying a paltry 0.10%. In fact, there are currently 113 variable rate ISAs that savers may hold, that pay 0.50% or less, so not even beating the Bank of England’s historic low base rate.

It is not just savers that are suffering from these more extreme examples that should consider switching accounts. There are a number of cash ISAs on the market that you are able to switch to, using the ISA transfer process, that suit a variety of circumstances. Not only could you improve the return you are getting on your cash ISA, but you may be able to fix the interest rate for a term that suits you or restrict access to your funds in return for a higher rate.

There are some significant sums of money currently held in cash ISAs, indeed if you saved into a cash ISA each year since its inception in 1999, you could have accrued over £100,000, a significant amount if you are not receiving a competitive interest rate. Having said that switching to a better rate is a great habit to get into and something everyone should do, regardless of the amount.

Below are some examples of some of the best rates on offer at the moment for those looking to transfer an ISA. You can still switch, even if you have already paid in your full cash ISA allowance this tax year, but only ISA balances from previous tax years can be partially transferred. However, if you are transferring an ISA, remember the golden rule; never close an ISA yourself or it will lose its tax free status. Always ask your new provider to request the ISA transfer on your behalf. 

If you are looking for easy access to your money, Post Office offers the Premier Cash ISA paying 1.40% tax free/AER, but you are restricted to just two withdrawals per year and the rate includes a 0.75% bonus for the first 18 months, so you may need to switch again at that time. However, as long as you plan withdrawals carefully and prepare to switch after 18 months, these factors should not prove too much of an issue.

For those who don't need easy access to their ISA funds, there are a number of accounts available on the market that offer a higher return in exchange for giving notice on withdrawals. At the moment Teachers Building Society pays 1.50% tax free/AER on its Cash ISA Notice 90 (Issue 5) on balances above £100 and for those with larger deposits, National Counties Building Society pays 1.60% tax free/AER on balances above £30,000, on its 45 Day Notice Cash ISA.

You are able to get a higher return on your cash ISA by tying your funds up for a fixed period with a Fixed Rate Cash ISA. In exchange for agreeing to not access your funds, unless you pay a penalty, the interest rate will be fixed for up to five years. For those looking for a shorter fixed term, Kent Reliance pays 1.45% tax free/AER for one year. For those looking for longer term stability may consider Shawbrook Bank, paying 1.85% tax free/AER for 3 years. At the moment, the highest rate for the longer five year term is 2.33% tax free/AER from United Bank UK.

In addition, savers may consider using Sharia compliant cash ISAs, though the way the return is calculated differs to a standard savings account. Sharia compliant accounts pay an expected profit rate rather than interest, so the return is based on the profit made by the provider on investments made. Therefore, there is an element of risk involved in this type of account, as the return is not guaranteed, although the capital is fully protected up to the Financial Services Compensation Scheme limit of £75,000 per saver. Al Rayan Bank offers Sharia compliant cash ISAs with a 120 Day Notice Cash ISA paying a 2.00% expected profit rate and a 12 Month Fixed Term Deposit Cash ISA with a 1.90% expected profit rate. As you can see, these accounts pay significantly higher returns than standard equivalents, though you must ensure that you are comfortable with how returns are calculated and fully research this area of the savings market before proceeding.

If you are unsure of what interest rate you are currently getting on your cash ISA, or indeed any of your savings accounts or if you would like to discuss where to transfer your existing cash ISA in more detail, call us on 0800 321 3581 to talk to one of our expert savings advisers, we’d love to hear from you.