The ISA season is a great opportunity for savers to not only find the best cash ISAs for the current tax year’s allowance but also to review older ISAs and transfer them if they are no longer competitive.
Just like any other savings accounts, over the years, interest rates can dwindle. This is especially true if you opened an account with a bonus rate which applied for the first 12 months. Or you may have had a fixed rate ISA that matured and you didn’t get around to moving it at the end of the term.
For example, in January 2016, the Post Office Savings Online ISA Easy Access Issue 4 was paying a market-leading rate of 1.45% tax free/AER - which included a variable rate bonus of 0.80% for 12 months. Today, savers who have not moved their cash from this account are earning just 0.50% tax free/AER.
The best simple cash ISA back then was the Coventry Building Society Easy Access ISA (2), which was paying 1.40% tax free/AER - today this account is still paying a far more competitive 1.15%.
If you deposited the then cash ISA allowance of £15,240 into the Post Office option and failed to move it, your £15,240 would today have grown to approximately £15,540. If you had chosen the simple option with Coventry, you would have earned £280 more in interest, as your £15,240 would now be worth £15,820 – nearly 2% more over the last three years.
For some savers, the other issue is that they are not sure if they are able to move their cash ISA – or how to do it.
As a cash ISA is simply a tax-free savings account, you are free to switch to another. But there is a golden rule when it comes to transferring an ISA.
If you want to switch, you must not close your existing ISA, as that will mean losing the tax-free benefit.
Instead, you need to approach the new provider you wish to move to and complete the cash ISA application and transfer forms. They will then contact your existing provider and arrange the transfer for you.
>> To get started, take a look at our new ISA transfers factsheet
There are also some investors that may be looking to switch from a stocks and shares ISA into a cash ISA, something that would not have been allowed before a change to the rules was introduced in July 2015.
There are a number of reasons why an individual may wish to do this, for example they may be looking to make their ISA savings more liquid or may be looking to reduce the volatility of their investment portfolio.
People often look to move more of their investments into cash vehicles as they start to approach retirement, as they are looking to use the money or ensure that the investment risk they are exposed to is reduced.
Whatever the reason, it makes sense to take advice before cashing in any investments. But if you have made that decision, the good news is that this is possible now and is undertaken in the same way as any other ISA transfer. However, it is worth noting that not all providers will accept transfers into their cash ISAs from stocks and shares ISAs, so your choice may be limited.
So, an ISA transfer is a valuable tool in a saver’s armoury, allowing you to make the most of your tax-free interest.
As is often the case, there is some work involved in switching to a more competitive savings deal, but most of the heavy lifting is undertaken by the bank or building society that you are moving to – so there is no reason not to get the ball rolling.
Of course, finding the most suitable cash ISA for you is the key to success and this is where Savings Champion can help. Check out our independent best buy tables or for further assistance, call one of our savings experts on 0800 011 9705.
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