Penalties for transferring out of Fixed Rate Isa

westbridgfordguy

One of my ISA's has matured about 2 months ago and I was offered the opportunity of converting it to a 1 year Fixed Rate ISA with an interest rate which quite attractive at the time compared to other ISA's.

Roll on to now and I have seen several ISA's with an enhanced interest rate, the terms and conditions of my ISA state that transfers out are permitted subject to 180 days loss of interest on the amount withdrawn.

How does this work? If I've only held the ISA for 2 months how then can then deduct 6 months interest for 4 months that I haven't earned yet? Or basically are they going to "tax" me 6 months equivalent of interest from the amount I've got invested with them so I get transferred less then I deposited initially?

TIA

eskbanker

westbridgfordguy wrote: »

How does this work? If I've only held the ISA for 2 months how then can then deduct 6 months interest for 4 months that I haven't earned yet? Or basically are they going to "tax" me 6 months equivalent of interest from the amount I've got invested with them so I get transferred less then I deposited initially?

The latter - you'll get less back than you paid in, losing the equivalent of four months interest.

Or you'll perhaps leave it for the rest of the fixed term after you've weighed up the cost of leaving it versus shifting it....

Tom99

You will need to improve your intrerest rate by min of 60% to make changing worthwhile.
So if you 1yr fix was at 1.5% you will need a new account paying at least 2.4% just to break even.