Transfer your Cash ISAs
Boost the interest to 6.25% 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.

At the moment you can only transfer money from existing ISAs into another cash ISA, but from April the rules are changing, allowing you to move savings between these and shares ISAs

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, the top paying cash ISA does allow transfers in, which is great news!

On 10 April, Bank of England cut UK base rate to 5% After such a fall, it usually takes the savings account market up to a month to stabilise. This article will be updated as regularly as possible, yet for the time being you should double check rates yourself before applying, or wait until the market has stabilised – I’ll let you know in my Weekly Money Tip. View Past Emails, FAQ

• A clean 6.1% 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

  The Base Rate

  Current Rate: 5%
  Last Change: 10 April
  Next Meeting: 8 May

  This is the standard UK interest rate set by the Monetary Policy Committee of the Bank of England. They meet each month to decide whether the rate should move or stay the same, in order to keep inflation (Consumer Prices Index) as near to 2% as possible. When they change their rates many mortgages and savings accounts change with it; though unless they’re tracker rates they don’t have to.

  Close
  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 will also allow you to shift previous years cash ISAs in (see Cash ISA Transfers article for more details).
  
  IIMPORTANT. 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 higher 6.25% if you've £1+, but be prepared to ditch it after a year
  
  Alliance & Leicester's Direct ISA* pays a higher 6.25%, yet this rate includes an introductory bonus, so the rate will drop by 1% in May 2009. This is a good length of time, but only go for it if you're willing to switch to a higher paying accountat that point, which it will allow you to do without penalty.
  
  This rate is on all balances from £1, and you can transfer in all previous years' ISAs (see Cash ISA Transfers article for more details). The account can be operated online or over the phone, and allows no-notice withdrawals.



• Higher rate from £1,000, but not instant access: 6.3%
  
  Scarborough BS's Notice Cash ISA pays 6.3% AER from £1,000; however you must give 30 days notice if you want to make a withdrawal, or face a penalty of 30 days interest to get your cash. It does allow you to transfer previous year's allowances in, although any transfers out will be subject to the 30 day interest penalty .
  
  
• Kent Reliance 5.76% from £1, Offline. If you want an offline account, or will be transferring less than £1,000, Kent Reliance Building Society's Direct ISA pays 5.76% and allows penalty free transfers in and out.
  
  
• 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, you can't shift it to a shares ISA at the moment (it will be possible from this April), but there's still a way. The complicatedly named Guaranteed Equity Bond cash ISAs (cash ISA GEBs). Here you lock your money away for around five years and the tax-free interest depends on the performance of the stock market, yet if it crashes you’re always guaranteed to get at least your original cash back.

If this sounds too good to be true, the main fly in the ointment is you get the stockmarket’s growth but not any dividends (usually worth 2-3% a year). So, compared to a direct stock market investment, the returns if the market's increasing aren’t as good; but your money is protected if the market falls.

If you want to try and get a little more money out of your Toisa, and are prepared to take the risk of losing out on any interest, then these are for you. A typical GEB Toisa will pay 60% of the growth of the stockmarket index (e.g. the FTSE-100 index which measures the performance of the UK's leading companies' shares) over 5 years.

The range of GEBs on the market are constantly changing but Birmingham Midshires, Barclays, Britannia BS and Leeds BS amongst others all tend to offer them.

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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