Cash ISA rate changes

magpiesaver

I have two cash ISAs, a Direct ISA (4) with Alliance and Leicester, and a Barclays Tax Beater. In both cases, they have dropped the interest rate substantially (no surprise there) but both banks are now offering new ISAs at about twice the interest rate I'm getting.

I was furious to discover that although both the new ISAs accept external transfers, they won't accept internal transfers from their own customers - we are barred from switching.

Can they do this? Are there no rules to say that they should offer me the chance to transfer to the new account? The Banking Code makes various provisions for what the banks should do if their rate drops "compared with the Bank of England base rate" but that is not the issue here.

I have actually taken most of my money out of one account (I know, I know, but we need to use some, and I'm no longer a taxpayer now). I have no trust or loyalty towards either bank now, but I'd like to know whether they can legally do this, and how to avoid being caught in such a trap in future.

ozzage

I can't help on your real question, but in theory you COULD transfer out to another provider, and then transfer back in as an external transfer.

Whether it would be worth it would be unlikely given the interest you'd lose on the transfers...

magpiesaver

Yes, in theory I could transfer twice, but last year I found the transfer process so slow and clumsy and stressful I couldn't bear to do it any more than necessary. Anyway, I'd prefer to avoid banks that treat customers so badly (assuming I can still find some that don't!).

bob_a_builder

Yes - I've just found Halifax have done the same, just noticed mine has dropped to 0.18% ( at my tier) !!!

But now find they are now offering another cash ISA giving 2%, same features as other account
(not brilliant but slightly better that 0.18)

Not bothered to try and switch internally, I'm off elsewhere ...

LINK

"and how to avoid being caught in such a trap in future."

kep an eagle eye on their rates or go fixed interest

Ted0136

An A&L letter this morning informed me my cash ISA would become a Dormant account unless I did some thing about it, but " Don't worry its still my money and will still earn interest but I will not get a statement in future". When pressed customer services said as from 02/01/09 my rate had dropped to 1.3%. Yes I can open a new ISA and transfer in @ 3.6% but NO internal transfer. Well I am doing something my money is leaving this account.
I do wonder what else there is in a Dormant acct. for A&L ?

rb10

bob_a_builder wrote: »

Yes - I've just found Halifax have done the same, just noticed mine has dropped to 0.18% ( at my tier) !!!

But now find they are now offering another cash ISA giving 2%, same features as other account
(not brilliant but slightly better that 0.18)

Not bothered to try and switch internally, I'm off elsewhere ...

LINK

Changing from one ISA to another within Halifax is literally the work of about 20 seconds. Either go into a branch, and they will be able to do it over the counter immediately, or get them to phone you from http://www.halifax.co.uk/savings/savingscallback.asp and it'll be done instantly.

Then, even if you do switch away, at least you'll be earning 2% until the date the money leaves your Halifax ISA, for such little effort.

pennylessstudent

If they only let you do external transfers could you not transfer your existing A&L ISA to the new Barclays rate and the existing Barclays ISA to the new A&L rate? Then it would be external.