Transfer your Cash ISAs
Boost the interest to 6.1% on past & present years

Providers want us to think once a cash ISA is open, it's a done deal, allowing them to drop interest rates in safety. Yet everyone has the right to transfer their existing cash ISA to another provider; the trick is finding one that will let you. This step-by-step guide will show you where to put your cash for maximum gain.

What is an ISA?

If you have savings, and aren't using an ISA (Individual Savings Account), then you're over-engorging the taxman's pocket. A Cash ISA is simply an untaxed savings account; get the top payer and it's a big interest boost. You can deposit up to £3,600 each tax year, from April to April, and you should be trying to earn as much interest as possible.

As ISAs began back in 1999, it's now possible to have £27,000 plus interest tucked away in them; yet the likelihood is that if you've not kept your eye on the rate, it's dropped lower than a limbo dancer. Luckily, you are free to switch your ISA money about, meaning it is possible to surf a wave of high, tax-free rates, as long as the account's rules allow transfers, and not all of them do.

For seven years now whether on telly, radio or in m'book I've used the same analogy to explain ISAs. So why stop now? Here come the cakes! For a more detailed explanation of ISAs, including what happened to the old mini and maxi rules (don't worry it still includes the cakes) see the ISA Guide.

Why transfer your ISA?

Cash ISA rates move and change, the best buys a few years ago may be paltry players now. By transferring you can ride the wave of high rates, while keeping your cash in the tax-free wrapper. It's also possible to fix the rate or up the risk you're taking to get much higher potential returns by using different types of cash ISAs; more on that later.

You can also transfer money from 'Tessa-Only ISAs' (which are known less tongue-twistingly as Toisas!). If you had a Tessa, the tax-free forerunners of ISAs before 1999, it's possible some of your cash was swept into a Toisa once the Tessa matured. If your cash is still there now, the top picks here will accept that transferred in too. Find out more in the full article, Maximise your Toisa.

Any reason not to transfer?

You may be charged a penalty by your current provider for transferring out. This is becoming less common, but always check; a small penalty like 30 days' lost interest isn't such a big issue, but a higher fee effectively locks you in, as the gain from switching is gazumped by the transfer charge. If your ISA has a penalty for leaving, work out if you'll actually be better off by switching to the better interest rate.

How to transfer: The Golden Rule!

Transferring an ISA allowance is a technical process, not just like switching a normal savings account. Yet as long as you abide by my golden ISA transfers rule, it should go smoothly.

"Never, ever, ever, ever withdraw money from a cash ISA!
You'll immediately lose all the tax benefits."

Instead speak to the new provider and fill out a transfer form. This will usually include a note you can send to your existing ISA company. Your new company should then sort it all out, including moving the money over for you, keeping your tax benefits in tact.

The rules

Like ISAs themselves, the transfer rules are unnecessarily complicated. The two key ones are:

• Not all transfer types are allowed. You can transfer a cash ISA into a shares ISA, but not the other way around.
  
• Only past year's ISAs can be split. Current year's cash ISAs must be moved whole, but previous years' allowances may be split between different providers.
  

These rules are explained in full in the comprehensive ISA Guide.

The UK's Top Paying Cash ISAs

Not all cash ISAs accept transfers in, especially the top paying ones; their high rates are intended to grab headlines and new customers, but cost the banks as little as possible. Yet at the moment, one of the top paying cash ISAs does allow transfers in, which is great news!

• A clean 6.1% online if you've £1,000+ with a strong rate guarantee.
  
  Icesave’s Easy Access ISA pays a clean rate of 6.1% AER (meaning no short term bonuses); better still the rate is guaranteed to be at least 0.3% above UK base rate until the end of Jan 2011, and then at least base rate for a further two years. This means you can leave your money here and be assured of a decent rate for three years. As it's an overseas bank, any cash saved in it is protected slightly differently to a UK bank, read Are Your Savings Safe?
  
  The minimum opening balance is £1,000 but after that you can withdraw money penalty free whenever you want. It's an online-only account, and will allow you to shift previous years' cash ISAs in. .
  
  IMPORTANT. Icesave, unlike some foreign banks, hasn’t chosen to be completely protected under the UK's Financial Services Compensation Scheme, and thus if, in the unlikely event that it were to go bust, getting the money back could be more difficult. See the Are Your Savings Safe? guide for a full explanation, and Martin’s Icesave safety blog.
  
  
• A lower 6%, but good if you've under £1,000.
  
  The Principality Building Society's e-ISA pays interest of 6% on everything in the account, from £1. It is operated solely online, and gives no-notice access to your cash. You can transfer in all previous years' ISAs (see Cash ISA Transfers article for more details).
  
  
• 5.76% if you want an offline account
  
  Building society Kent Reliance pays 5.76% from £1 in its Direct Variable Rate Cash ISA, and accepts transfers in from previous years' ISAs. This has to be applied for and operated by post.
  
  
• Check your local Building Society. On occasion a few small Building Societies may beat these with special deals for people in their locality or existing customers, so it's worth checking yours. All these rates are variable, meaning the providers can change the interest whenever they like. Therefore always monitor what yours pays and transfer again if it drops. For more options and alternatives, read the Top Cash ISAs article.
  
  

Specialised Alternatives

Fixed Rate Cash ISAs.

It is possible to get a fixed rate cash-ISA, and unlike normal fixed rate savings accounts you can withdraw money at any point, though there will be withdrawal penalties.

The idea is this protects you from interest rates dropping (though if they rise you'll lose out). To find the current high payers, take a look at Moneysupermarket's* (select Bond or Term accounts) online comparison of fixed rate ISAs. Though remember, it's just a simple list of top rates, so ensure you check for the possible pitfalls noted in this article.

Want to up the risk?

If you want to up the risk, and potential reward/loss, on your cash ISA money, the rules were changed in April 08 to make this easier as it is now possible to transfer your cash ISA into a shares ISA (but not the other way around). Read the full ISA Guide.

A full £27,000 in Northern Rock's very poor 4.79% interest instant access cash ISA would earn just £4,070 interest over three years, compared to £5,200 with Icesave. Yet even if Icesave's rates dropped, by monitoring and keeping with the top payers, that type of gain should still be possible.

The benefit from transferring the full £27,000 worth of cash ISAs
	Rate	Total Interest			Gain
		1 year	2 year	3 year
Northern Rock	4.79%	£1,295	£2,650	£4,070	-
Icesave	6.1%	£1,645	£3,395	£5,250	£1,180
For ease of illustration calculations assume variable rates remain constant

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