Natwest e-savings / Cash ISA confusion

philpem

Hi folks,

I've got a couple of savings accounts and a current account with Natwest. Probably not the best idea in the world at the moment, but thus far they've proven themselves reasonably competent (certainly moreso than Halifax and Yorkshire -- the former had a tendency to "lose" my money, the latter couldn't even handle a BACS transfer)... So, on with the story.

I've been thinking about scrapping my Cash ISA and opening an e-ISA for a while (due to the higher interest rate). I do 95% of my banking online (in fact, I think the only time I've been into my local branch in the past 6 months was to pay some cash in) so "branch access" really isn't worth that much to me. The interest rate difference is now pretty spectacular -- the Cash ISA is sitting at 0.6%, the e-ISA is somewhere around 3.5% if memory serves.

A couple of weeks ago, I got a phone call from NW regarding my Cash ISA. Basically, this amounted to "the Cash ISA rate is only 0.6%, a Cash ISA Plus has a much higher rate, do you want to open one?". At what sounded like great annoyance to the poor lass on the other end of the line, I pulled up the Natwest website and compared the rate of the e-ISA against what they were offering me, and it looked like I'd end up better off with the Cash ISA Plus... so I took them up on their offer.

At the time, I thought I was transferring my Cash ISA over to a CI+, so I let it sit for a couple of weeks thinking "maybe it takes a while to transfer"... Nope, the CI+ sat at zero balance, and the Cash ISA balance is where it was last time I checked. So evidently it's a completely new account (which NW confirmed in a phone call this morning). So I've transferred £3600 from the Cash ISA into the Cash ISA Plus, on the grounds that I'll probably be far better off interest-wise. This now leaves me with a couple of hundred quid left over in the Cash ISA.

Point of reference -- the Cash ISA has an interest rate of 0.6%, my e-Savings account's net rate (i.e. after tax) is 0.87%.

Have I missed something blindingly obvious here? Surely that can't be right... Am I really better off moving that money into my e-Savings account and closing the Cash ISA (and obviously keeping the Cash ISA Plus as-is)?

This just seems a bit counter-intuitive (read: "wrong") to me...

Thanks,
Phil.

a7man

Yes this can be true, however if you were a higher rate tax payer (assuming you are not) then it may dip below the cash ISA figure.

A lot of people dont move money around that much so the banks can put them on the low interest rates for years before they notice.

rb10

You have to consider the long-term benefits of an ISA, as well as just what is happening now. Remember that in the future, ISA rates may well be much higher than the equivalent net rates from a normal account (as indeed they were until recently). So I would always urge anyone to keep it in an ISA, just move it to a better one.

You say that you transferred £3600 from your Cash ISA to the Cash ISA Plus. Do you mean you did it yourself, manually? As if this is the case, then that will have used your entire ISA allowance for this year. If you'd got Natwest to do it as an ISA transfer, your allowance for 2009/10 would still be intact.

Anyway ... a better solution would be to transfer (using the proper ISA transfer process) your whole ISA (or both of them) to another bank. There are much better ISAs around, e.g. Halifax ISA Direct Reward, which has a high fixed rate but gives instant access. (Many of the highest payers at the moment, e.g. Natwest's 3.5%, are likely to drop their rates very soon).

philpem

a7man wrote:

Yes this can be true, however if you were a higher rate tax payer (assuming you are not) then it may dip below the cash ISA figure.

Nope, I work part-time, so well below the "personal allowance" (or whatever it's called).

rb10 wrote: »

You say that you transferred £3600 from your Cash ISA to the Cash ISA Plus. Do you mean you did it yourself, manually? As if this is the case, then that will have used your entire ISA allowance for this year. If you'd got Natwest to do it as an ISA transfer, your allowance for 2009/10 would still be intact.

The full story is:
- Natwest called me and offered the ISA+. I accepted. I was under the impression that they were transferring the money from my Cash ISA to the ISA+.
- This morning I noticed that nothing had been transferred and called Natwest CS to ask why. The explanation was that "a Cash ISA Plus is treated as a separate account, and you can't transfer from a Cash ISA to a Cash ISA Plus".
- I transferred £3600 from the ISA to the ISA+ -- which as you quite rightly pointed out means I've used my Cash ISA allowance for this tax year.

rb10 wrote: »

Anyway ... a better solution would be to transfer (using the proper ISA transfer process) your whole ISA (or both of them) to another bank. There are much better ISAs around, e.g. Halifax ISA Direct Reward, which has a high fixed rate but gives instant access.

Can you still transfer from one provider to another (e.g. Natwest to Halifax) even if you've used all your ISA allowance for a given tax year? I was under the impression that you couldn't -- the paperwork I've got has this in the terms and conditions:

"I have not, and will not subscribe to another Cash ISA in the same tax year that I subscribe to this Cash ISA"

rb10 wrote: »

(Many of the highest payers at the moment, e.g. Natwest's 3.5%, are likely to drop their rates very soon).

I'd still argue that -- as the old saying goes -- "a bird in the hand is worth two in the bush". Better to earn a month or two of interest on £3600 at 3.5%, than the same time on the same amount at 0.6%. Of course if the rate hits absolute zero and holds for the rest of the year, then that might not necessarily be true...

Thanks,
Phil.

rb10

philpem wrote: »

Can you still transfer from one provider to another (e.g. Natwest to Halifax) even if you've used all your ISA allowance for a given tax year? I was under the impression that you couldn't -- the paperwork I've got has this in the terms and conditions:

"I have not, and will not subscribe to another Cash ISA in the same tax year that I subscribe to this Cash ISA"

It's quite fair enough to come to your conclusion from reading this. However, in HMRC's lingo, 'subscribe' in this context means 'pay new money into' (new money does not include transfers when they are done by the proper ISA transfer process).

So, you have subscribed to the Natwest ISA Plus this year, by transferring in the money yourself. However, if, say, you were to open an ISA at Halifax, and tell Halifax that you want to transfer in the balance of your Natwest ISA with sort code xyz and account number abc, then that would not count as subscribing, as it's not new money. So that is still allowed under the T&Cs. You can transfer ISAs at any time.

willo65

As you stated halifax had a tendancy to lose your cash so what you could do is open an E-Isa with natwest paying 3.25% or 3.51% if over £10k and transfer from Cash Isa to E-isa.

rb10

willo65 wrote: »

As you stated halifax had a tendancy to lose your cash

Just because they did something wrong once doesn't mean it'll happen again. Natwest made a complete mess of opening a student account for me some time ago, but that doesn't mean that any dealings I have with them in the future will also be a mess.

willo65

rb10 wrote: »

Just because they did something wrong once doesn't mean it'll happen again. Natwest made a complete mess of opening a student account for me some time ago, but that doesn't mean that any dealings I have with them in the future will also be a mess.

And yet you still hold a grudge against them.

rb10

willo65 wrote: »

And yet you still hold a grudge against them.

No, I do not hold a grudge against them at all. Despite the fact that they have messed me around, I would be more than happy to have accounts there if they had good interest rates. I have the e-savings for the £50 cashback, but I can get better rates on other accounts elsewhere.

I am only suggesting moving accounts because I believe there are better ones at other banks.