ISAs - Shopping for Cash ISAs

It’s essential to shop around for the best deals if you’re planning to take out a Cash ISA

If you’re using your Cash ISA allowance – and up to £5,100 a year can currently be invested tax-free, so for a couple that’s £10,200 – shop- ping around is not only advisable but essential, especially in the cur- rent environment of paltry interest rates.

Generally, the only return you get from a Cash ISA is the interest on your deposit, so accepting a second-rate deal makes no sense whatsoever: you are just hitting yourself in the pocket.

We have already seen that there are basically two kinds of Cash ISA account on offer – instant access/variable-rate and fixed term. Comparison websites such as moneysupermarket.com allow you to look at what’s avail- able in the market and find the best rates being paid.

You will also be able to see the difference between the terms that apply to different accounts and weigh up the pros and cons. For instance:

  • How long is the current rate guaranteed for?
  • Are there any penalties for making withdrawals? What notice period 
is there?
  • Is the interest being offered an introductory bonus rate and if so 
what happens when the introductory period ends?
  • What is the minimum deposit necessary to get the rate being offered?
  • Are transfers in from earlier ISAs permitted? Are there charges for 
transferring out?
  • For fixed term accounts, how long is the term? What happens when 
it comes to an end?
  • When and how frequently is interest paid?
  • Can you access the account online, via a branch, by phone or post, or via a cashpoint?
  • Can you make regular savings?
  • Do you need to have a current account with the 
bank or building society to open an ISA? 


 

Which? compiles a list of the best-rate Cash ISAs subject to certain conditions, ie. the providers must be fully covered by the Financial Services Compensation Scheme, all bonuses must be payable for at least 12 months, accounts must be stand-alone and available nationally and must accept transfers-in from other providers. (See www.which.co.uk/money/savings-and investments/reviews/cash-isas) 


Some Cash ISA providers have aroused ill-feeling among investors by offering lower rates on their easy- access ISAs than are made available on non-ISA accounts, offsetting the advantage of receiving tax-free interest.


At a time of meagre all-round returns and with the reputation of the banking industry having taken a hard knock, any suspicion of being ripped off is bound to lead to complaints.

The practice of drawing in new business with attractive introductory bonus rates which drop sharply after the honeymoon is over is another source of discontent. Loyal customers who have stayed with a bank are also irked if they see new accounts being opened and paying more attractive interest rates to which they are refused access.


The HMRC rules, which insist you have a right to transfer out of an ISA, are on the saver’s side, although some providers have been accused of taking too long to carry out transfers. Unfortunately, there’s no rule that says a provider must accept inward transfers.

The only sensible advice is to shop around for the best rates and have a close look at the small print before you open a Cash ISA. If you are already holding one or more and don’t like the deal you are getting, switch to some- thing better. Be careful though – make sure you move your money via a proper transfer. Don’t withdraw your money and then open another ISA as if you do this you will lose the attached tax benefits.

Fixed-term accounts generally pay a higher rate than easy-access accounts, and the longer the term the higher the interest you should expect to receive. Think carefully about whether you want to commit to, say, a five- year term though: the rate may look attractive now but if inflation were to return as is frequently threatened and base rates were to rise, it could start to look sick after a few years.

 

This ‘How to’ guide is produced by Shares Magazine and is only for general information and use, and is not intended to address particular requirements.

The value of investments and the income derived from them can go down as well as up. Past performance is not necessarily a guide to future performance.

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