Competition among banks ISA beautiful thing! Anyone with old cash ISAs can now boost the rate of interest they receive on them by a mammoth amount, thanks to banks competing to win your savings.
Everyone has the right to transfer an existing cash ISA to another provider, but the problem is most people don’t realise it. Many leave their products, untouched and unmonitored for years, sitting at whatever interest rate they’re being paid. This can leave them languishing in the doldrums of the best-buy tables.
Today is the day to put a stop to that.
What is a cash ISA? Let me begin with a reminder of ISA basics. An Individual Savings Account is a tax-free wrapper inside which you can choose to put cash or shares. And therefore the cash version of this is effectively just a savings account where the interest earned doesn’t get taxed so you get more.
Most ISAs allow you to withdraw the money with easy access, just like a normal savings account. You can currently put up to £3,600 a year in a cash ISA, though until last year it was only £3,000.
ISAs are now big money ISAs were introduced in 1999, so it’s now possible you could have up to £30,000, plus interest, tucked away in them. That’s serious cash, but no matter how much you have invested, it’s important to check the interest rate you’re earning and how you can maximise it.
Anyone earning under 6% interest should easily be able to make money by transferring, but if you are receiving under 5%, then moving your money should be treated as a matter of urgency.
The problem is, providers want us to think that once a cash ISA is open, then it’s a done deal and that allows them to drop their interest rates in safety.
Is saving in ISAs safe?
Savings safety is everywhere in the news, and can sound like scary stuff. However, the rule to keep your cash safe is simple don’t save more than £50,000 in any one institution. That is the amount the Financial Service’s Compensation Scheme (FSCS) guarantees you’ll get back, in the unlikely event that your bank goes bust.
This cover is for all accounts you have with the same bank, so if you had £30,000 in an ISA and £30,000 in other savings with the same institution, only £50k out of that £60k is 100% guaranteed.
Be careful how you transfer However, you have the right to transfer to another provider. Even if you opened up what was a best buy a few years ago, the way banks sneakily change products means your previously good rate may be a paltry payer now. Transferring allows you to ride the wave of high rates. Yet be careful. There’s a golden rule. Never, ever, ever, ever withdraw money from a cash ISA, unless you’re planning to spend it. Do so and you will immediately lose all the tax benefits.
Instead, speak to the new provider, who will supply you with a transfer form. This will usually include a note you can send to your existing ISA company.
The new company should then sort it all out, including moving the money over for you in a way that keeps your tax benefits intact.
Why it’s the right time to transfer... Quite simply, we’ve just seen some products launched that, for the first time ever, only allow transfers, and pay huge interest. They don’t allow new money in and the rates on offer are far higher than anything we have seen for a number of years.
They come from sister banks Natwest and RBS and which is best depends on how much money you’ve got invested; check out the table for the best buys. The big problem with these accounts though is that the rate listed includes an introductory bonus of 2% that lasts for the first 12 months.
After this, the rate falls to a reasonable, though nowhere near table-topping level, but at this point you should simply transfer again to the top payer. It’s not too much work to earn decent interest.
Like most savings accounts, the Natwest and RBS rates are variable. This means they can increase or decrease them willy nilly so monitor the rate you get every few months. If it’s not enough, transfer it again.
Despite Natwest and RBS being part of the same banking group, they actually operate as separate financial institutions. This means you get £50,000 worth of protection for your cash in each. Direct Line and Virgin Money share an FSCS licence with RBS though, so if you have any savings with those plus RBS, make sure your total doesn’t top £50k.
The other option is to fix the rate.
There are very good fixed rate Cash ISAs around at the moment. And a bonus is, that unlike some fixed rate savings accounts, ISA rules mean they can’t lock your money in, though you will pay a penalty to withdraw cash early.
So if you want to secure a high interest rate against the risk that the UK’s interest rates will drop, this isn’t a bad option. Both moneysupermarket.com and moneyfacts.co.uk have selections. Overall though, the most important message is check your rate and switch if you can. The gains can be huge if you had the full £30,000 saved; some people can gain over £700 a year shifting to the best payer.
The best ISA for you How much have you got? Who's the winner? What rate will you get? £1 to £8,999 Natwest 6.67% AER £9,000 to £14,999 Natwest 6.87% AER £15,000 to £17,999 RBS 6.95% AER £18,000 to £23,999 Natwest 7.16% AER £24,000 to £26,999 RBS 7.25% AER £27,000 or more Natwest 7.32% AER
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