Move current Fixed rate Cash Isas to better rate

[thebarns]

Apologies if this is an entirely obvious point to all, but if it resonates with just one reader….

Mrs thebarns and I have a series of different fixed rate cash isas with different amounts and rates and durations, some of which matured this year and some of which have 1-2 years till maturity date.

For the ones maturing in recent months, it is a straight forward thought process to find the appropriate higher rate and transfer the maturing ISA to that rate and provider.

And what an increase in rates since these isas were last reinvested anything from 2-5 years ago.

Over the weekend, I decided to break two existing 5 year cash isas which still had 1-2 years till maturity on rates of 0.85 and 1.6. Of course there are early redemption penalties, in this case , one year’s interest at the agreed old fixed rate, for each ISA, however the gain in interest rates to 4.88 and 5.25 for exactly the same remaining periods to maturity (one two years and one 18 months) far exceeds the early redemption penalties.

I’m sure it will have occurred to virtually all in the same boat, but just in case someone had not thought about it…

[1nvest]

Apologies if this is an entirely obvious point to all, but if it resonates with just one reader….

Mrs thebarns and I have a series of different fixed rate cash isas with different amounts and rates and durations, some of which matured this year and some of which have 1-2 years till maturity date.

For the ones maturing in recent months, it is a straight forward thought process to find the appropriate higher rate and transfer the maturing ISA to that rate and provider.

And what an increase in rates since these isas were last reinvested anything from 2-5 years ago.

Over the weekend, I decided to break two existing 5 year cash isas which still had 1-2 years till maturity on rates of 0.85 and 1.6. Of course there are early redemption penalties, in this case , one year’s interest at the agreed old fixed rate, for each ISA, however the gain in interest rates to 4.88 and 5.25 for exactly the same remaining periods to maturity (one two years and one 18 months) far exceeds the early redemption penalties.

I’m sure it will have occurred to virtually all in the same boat, but just in case someone had not thought about it…

Whilst nominal yields have risen, 1% when inflation was 2% = -1% real, 5% when inflation is 8% = -3% real. Good job they're ISA'd as 5% less 20% tax = 4% which relative to 8% inflation = -4% net real.

Nice idea though about taking the early withdrawal penalty to reduce a otherwise even greater real lag. As otherwise a taxable version is comparable to the equivalent of a 4% wealth tax upon individuals with cash.

I still think they're just talking the talk and we could still be at high inflation for months yet to come. Oh we thought inflation would decline more than it has. Sunak missing one of his pledges failing being no different to having missed his four others (stop the boats, lower NHS waiting times, lower UK debt, economy growing). With taxes at such highs funding their mates has to be sourced via other means. Is partially helping with net migration however, as the 1% that pay a third of the tax take are self-exiling.

[DrFfybes]

Thanks for the heads up.

I fixed for 2 years on 4.3% in April - seemed OK at the time

I could get 1% more (5.3%) on the same fix, but lose 180 days' interest (2%) so not worth it. But certainly would have been had I gone for a longer fix.

Paul

[david]

Truly grateful for this post - as I understand, this can be done and the money remains in an cash ISA account and could apply to current rates after paying exit fee of current cash ISA? Appreciate if someone could confirm this point, even though the annual allowance for ISA this year has been exhausted already

I somehow was under the wrong impression that if I take an early exit of my fix term (I had a poorly chosen low interest with 3 years to mature) cash ISA, that money wouldn’t be eligible to remain in an ISA - if I can keep it in ISA at current rates I would cancel one or two current fix from me and Mrs and re-apply

[Kantwebefriends]

this can be done and the money remains in an cash ISA account and could apply to current rates after paying exit fee of current cash ISA?

The system is that you get a form - paper or online - from the bank/BS providing your new ISA. As you complete it you'll find a choice of box to tick - you will choose the one that opts for an immediate transfer, accepting that there will be a penalty deducted by your old provider. And that's that: in my experience quick and simple as long as the new provider has no trouble establishing your ID. You can even swap between ISAs of the same provider, as my wife has done recently. That avoids any ID problem.

(We try to keep life reasonably simple by having a preferred "stable" of six bank/BSs we use. In our experience that gives us a good breadth of choice though obviously we won't usually be getting a table-topping ISA.)

[thebarns]

David,

I did it with phone calls to the provider - I moved to better rates with the same provider.

And yes, it has no impact on this year’s Isa allowances.

And yes, the newly transferred Isa retains its Isa status.

Easy process, happy to have assisted.