Move to a better ISA today!

by John Fitzsimons on 13 March 2010  |  9 comments
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The number of ISAs that accept transfers in is on the rise, so there's no reason to sit on a rubbish rate.

I know I’m not alone in having earmarked 2010 as the year of saving.

If the recession has taught us one thing, it’s the importance of getting together a decent savings safety net to see you through the bad times.

Why I love an ISA

And if there’s one way to get the most out of that money you’ve put aside, it’s to lump it all in an ISA.

Nobody wants to end up paying more tax than they absolutely have to, so it makes sense to take advantage of the brilliant benefits afforded by ISAs.

With a Cash ISA, you can put aside up to £3,600 each financial year. In fact, so long as you are 50 or over by 5 April this year, you can put aside even more – a whopping £5,100!

As the end of the financial year approaches, ISA season is really hotting up, with fantastic new deals launched on an almost weekly basis.

However, many of us are failing to get the most from our money.

Time to get transferring

New research from financial information website Moneyfacts has revealed an increase of almost 50% in the number of Cash ISAs that accept transfers in, taking the number to 272. As a result, nine in every ten ISAs will accept payments in!

This is hugely significant, as it means that if your ISA is no longer looking particularly attractive, you can soon rectify the situation and move to a far more competitive offer.

With so many ISAs accepting payments in, there is absolutely no excuse for sitting on a rubbish rate and getting a poor return on your money, when only a tiny bit of effort will result in more cash! It’s a no-brainer!

The top accounts – for big savers

The top two ISAs which accept payments in each offer a lovely 2.75% return. However, there is a catch or two to consider.

With both the Santander Direct ISA and the Alliance & Leicester Direct ISA, balances of more than £9,000 will benefit from the 2,75% rate. Sums of less than £9,000 will instead earn 2%.

What’s clear is that while the Santander and Alliance & Leicester ISAs look great, you will need to have been a user of ISAs for at least a couple of years to be able to transfer over a sum of that size to get the best rate. So while they are fantastic for experienced savers, if you are just starting out with ISAs, they are not the best place to begin.

Both the Santander and Alliance & Leicester ISAs also benefit from a healthy bonus for the first twelve months. As a result, they are a great option for a year, but you most likely will want to move the cash elsewhere after a year.

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Great for current account holders

The next batch of great ISAs that accept transfers in unfortunately are only available to savers that already have a current account with the provider.

With the Nationwide e-ISA you get a great return of 2.75% (including a twelve month 1% bonus) on sums from as little as £1. However, you must be a ‘card account’ holder with Nationwide.

Similarly, the first direct Cash ISA requires you to be a 1st Account holder before you can get hold of the 2.75% fixed rate it offers.

Finally, the Lloyds Cash ISA saver is available to existing users of its brilliant Classic current account with Vantage, paying a very respectable 2.7% absolutely tax free on sums of £3,000 plus, while it also offers a Cash ISA paying sums of 2.5% on sums from £1.

The best of the rest

So what if you don’t have many years of saving in ISAs behind you, and don’t have (nor want) one of the current accounts on offer from Nationwide, first direct or Lloyds?

In my opinion, the top Cash ISA to go for is from Birmingham Midshires, which pays 2.70%, including a 1% bonus for the first 15 months. Even better, you can open the ISA with as little as £500.

A good alternative comes from Cheltenham & Gloucester, which also offers a 2.70% rate, which includes a 1.7% bonus in the first year, and can be opened with just £1.

Going for a fixed rate

If you know for a fact that you won’t need the cash for a fair while, you can of course secure an even better rate by putting the money into a fixed rate ISA. The longer you commit the money to the ISA, the better the rate you will benefit from.

For example, go for a five-year fixed rate Cash ISA from Birmingham Midshires, and you’ll get a marvellous 4.55% AER on your money. However, that will obviously mean you won’t be able to get your hands on your cash for five years, so don’t put any money in that you are likely to need before the end of the term.

Watch out for penalties

Sadly, finding a great Cash ISA that allows transfers in is only half the story – you also have to worry about your existing ISA provider. Some will charge you for transferring your cash to a new provider, which is a bit nasty to be honest. So before you do go through with a transfer, make sure you know exactly how much it will cost you to move your cash.

Also, when you do transfer the money, make sure you ask your existing provider for a transfer form, rather than withdrawing the cash from the bank yourself. Otherwise you will lose the tax-free wrapper!

More: Top ISA dos and don'ts | Earn 15% interest on your savings!

Compare ISAs at lovemoney.com