Transferring a fixed term ISA

x2net

I note that whilst providers imply that if you invest in a fixed term cash ISA you can't get your money out until the end of the term, in fact you can. Legislation insists that you be allowed to close it, usually with a loss if interest of up to 180 days.

My question is whether transferring the funds to another cash ISA counts as closing the source cash ISA and if therefore you can do that at any time irrespective of whether you have reached the fixed term maturity? If so, it seems to me that going for the longest fixed cash ISA you can is the best bet. Or can the source ISA refuse the transfer on the basis that it is a withdrawal, not closure?

Colin.

Lokolo

x2net wrote: »

I note that whilst providers imply that if you invest in a fixed term cash ISA you can't get your money out until the end of the term, in fact you can. Legislation insists that you be allowed to close it, usually with a loss if interest of up to 180 days.

My question is whether transferring the funds to another cash ISA counts as closing the source cash ISA and if therefore you can do that at any time irrespective of whether you have reached the fixed term maturity? If so, it seems to me that going for the longest fixed cash ISA you can is the best bet. Or can the source ISA refuse the transfer on the basis that it is a withdrawal, not closure?

Colin.

Where is this bit of legislation then?

Banks individually decide what their T&Cs are, there is no 'legislation' saying banks have to let you or anything.

If the bank lets you you can transfer and lose loads of interest. However, not all banks let you and you will not be able to access the money, transfer or withdrawal.

x2net

Lokolo wrote: »

Where is this bit of legislation then?

Mentioned on the moneysavingexpert page about ISAs, where it says...

"(While your money is supposedly locked away for 1 to 5 years, providers are forced to permit withdrawals, usually with an interest penalty of between 60 and 180 days)."

I haven't gone looking for the exact piece of legislation, but I assume Martin and his guys know what they are talking about and I'm sure the providers wouldn't allow this unless legislation forced them to.

Interestingly I'm just looking at the terms of a Principality cash ISA, and that one states...

"Early closure or transfer out results in loss of 180 days' interest"

So at least that one suggests you can transfer elsewhere before maturity if rates elsewhere shoot up (albeit with the loss of 180 days interest). I wonder if that is universal.

Colin

Lokolo

Oh right I see. Not sure where Martin got this. Who knooooows.

But yes its worth knowing as rates could shoot up in 2 years and it maybe worthwhile to switch. However it is unlikely to happen at the moment.

If you are transferring the ISA to another ISA it will count as closure.

Also something to bare in mind, if say the period is 180 days, and you have only had it for 60 days, the other 120 might come out of the capital (Halifax says it doesn't for them though!!!)

Halifax_Fixed_Rate wrote:

If your fixed rate account is closed early or transferred then the amount of interest you lose is taken off any interest earned on the fixed rate account. If there is not enough interest earned on the fixed rate account, we will not take this amount from capital, therefore the closing payment will not be less than the money you originally put in.

Not sure if this is across the board though!

(and Halifax is 180days)

rb10

x2net wrote: »

Interestingly I'm just looking at the terms of a Principality cash ISA, and that one states...

"Early closure or transfer out results in loss of 180 days' interest"

So at least that one suggests you can transfer elsewhere before maturity if rates elsewhere shoot up (albeit with the loss of 180 days interest). I wonder if that is universal.

Losing 180 days' worth of interest is not insignificant, and will make a substantial dent in the amount of interest that you are paid. In all but a minority of cases, you would be worse off by doing this than by taking a shorter term ISA, and getting the full amount of interest on maturity.

x2net

That all depends where interest rates go, and how quickly they move.

You can currently get 4% on a 3 year fix with M&S. Assuming an investment of £5000, if after 1 year there is a 3 year fixed deal at 6% available with S&M you would be better of taking the loss of 180 days interest on the M&S deal and shifting it to S&M. At the end of 3 years you would be £100 better off.

The best one year deal at the moment seems to be 3.25%, and yes if you took that and at the end of the year you transferred to that S&M 6% deal that would be the best way to do it, but of course if interest rates don't move (or move down, agreed unlikely in the current scenario) then it isn't.

Not sure it is that simple to know really, but the option of transferring early (with a penalty) without losing the ISA wrapper whilst still getting a better interest rate from a longer fix seems to me to be quite appealing. I guess it all depends on the premium you get for the longer fix.

Colin

Lokolo

x2net wrote: »

That all depends where interest rates go, and how quickly they move.

You can currently get 4% on a 3 year fix with M&S. Assuming an investment of £5000, if after 1 year there is a 3 year fixed deal at 6% available with S&M you would be better of taking the loss of 180 days interest on the M&S deal and shifting it to S&M. At the end of 3 years you would be £100 better off.

The best one year deal at the moment seems to be 3.25%, and yes if you took that and at the end of the year you transferred to that S&M 6% deal that would be the best way to do it, but of course if interest rates don't move (or move down, agreed unlikely in the current scenario) then it isn't.

Not sure it is that simple to know really, but the option of transferring early (with a penalty) without losing the ISA wrapper whilst still getting a better interest rate from a longer fix seems to me to be quite appealing. I guess it all depends on the premium you get for the longer fix.

Colin

You should have gone with Northern Rock 5 year fix