Transfer Your Way To A Better Tax-Free Return
Getting the best cash ISA should be easier than ever before. If your old ISA is second rate, it's time to transfer.
The key to getting the right financial products is to shop around. We all know it. But switching from one account to another isn't always as easy as it should be, especially for cash ISAs.
Unfortunately, the process of transferring your money from one ISA provider to another can literally drag on for weeks and weeks. And every day your money is stuck in an old account is another day lost when you could be earning a better tax-free return somewhere else.
This is because HM Revenue & Customs generously allows existing ISA providers up to 30 days to respond to a request to transfer an ISA to a new provider, let alone complete the process. But thankfully, new guidelines* announced last week should help to speed things up. And that should make it easier for you to chase the best rates.
So there's no reason why you can't ditch any cash ISAs which are paying paltry rates of interest and move on to bigger and better things. Here's how to do it.
The New Guidelines
The new guidelines state that every stage of the ISA transfer process should take no more than a set length of time - and that the whole process in total should take no more than 23 working days from start to finish. (You can find out more details here.)
If ISA providers do start to follow these guidelines, it would be a marked improvement from the current system. At the moment, while ISA providers have to respond within 30 days to the request to transfer the ISA, the actual process of transferring it often takes much longer... and, as some Fools know, can even drag on indefinitely.
Unfortunately, the guidelines are only voluntary - they are not rules - so arguably are not much use. Still, if you do suffer a delay, these new guidelines should help you to argue your case for compensation when complaining to the provider and the Financial Ombudsman.
How to transfer your ISA
You can transfer your ISA whenever you like. You don't need to wait for the end of the tax year or the beginning of a new one. In fact, the sooner you do it the better so you can start taking advantage of a more competitive rate of interest on your savings.
What's more, you can transfer your cash ISA around from one provider to another as often as you like. Even if you have opened an account recently, but think you may have made a bad choice, you can still move it now.
Remember these transfer rules: ISAs opened this tax year must be transferred in full if you do so between now and 5 April 2009 (the end of the tax year). But ISAs opened in previous tax years can be transferred in full or in part, as you wish.
Of course, the first step is to decide where you want to move your money to. I'll talk about that more later. Once you've done that, the second step is to tell the new provider you want to transfer your existing ISA(s) to them. They will normally ask you to complete a transfer form to kick the process off.
It's really important you don't just withdraw money from your old ISA and put it into a new one instead of asking for a transfer. Once you take money out of an ISA account it can't be replaced and you will lose the valuable tax breaks. If you then try to re-invest the money in a new ISA, it will use up more of your current tax year cash ISA allowance (that's assuming you have any left and you haven't already invested the maximum of £3,600).
Transferring between ISAs, however, does not count as using up your ISA allowance for the year. So even if you've invested the full £3,600 this year, you can transfer the money between ISAs as often as you wish.
So where is the best place to move your money to right now? Let's take a look at today's best buys which all pay at least 6%:
Top ISAs for new money
Cash ISA Provider
Tax Haven ISA
1% bonus for 12 months
Egg Cash ISA
Bear in mind not all ISA providers will accept transfers. The table above shows the ISAs with the best rates for new money, but these accounts won't take current ISAs or old ISAs transferred from previous tax years. If you've already used your ISA allowance for this tax year, or have ISAs from previous tax years that are languishing in a low-interest account, these are the best ISAs that allow you to transfer your cash:
Top ISA transfers
Cash ISA Provider
Easy Access ISA
Alliance & Leicester
1% bonus to 30.09.09
Direct ISA Issue 3
Stocks & Shares ISAs
If you have Stocks & Shares ISAs then you'll be pleased to know that if you aren't happy with how they're doing they can be transferred in exactly the same way as cash ISAs. In fact, you can even move money from your Cash ISAs into your Stocks & Shares ISAs if you want more stock market exposure. (But you can't move Stocks & Shares ISA into cash).
But it's a little tricky for me to recommend a new Stock & Shares ISA provider to move to, because that largely depends on how much risk you want to take and the types of shares or markets you want to invest in.
If you're new to investing, the classic Foolish approach is to invest in an index-tracking ISA, where the return you receive will closely match or `track' the performance of a share index. Most funds are based on the FTSE 100 or the FTSE All Share indices. Personally I like Legal & General's UK Index Tracking ISA for its low charges and strong long-term performance. (Read more about index-tracking ISAs here.)
So what are you waiting for? Start your ISA transfer today. And don't forget, if you feel like your old provider is dragging its feet make sure you complain. If you have lost money because of needless delays you may even be entitled to compensation.
*The guidelines have been produced by a collaboration of the British Bankers Association, the Building Societies Association and the Tax Incentivised Savings Association.