Transfer a Fixed term ISA before maturity to get a better rate?

phil2010

I opened a few one year fixed term ISAs 6 months ago at rates of around 1.4%.

Now that rates have more than doubled I’m wondering if I’d be better off transferring them to a higher rate ISA e.g. 3.2% and taking the hit on the early closure penalties of 90 days interest.

Does anyone know if there are online calculators to help me work out if I’d better better off doing this?

refluxer

This is the one I use : https://gatehouselaw.co.uk/tools/simple-interest-calculator/

Here's how I would look at your example (all figures approximate and rounded off)...

A 1 year £20k ISA @ 1.4% taken out on 27/03/22 will be worth £20,280 on 27/03/23 if left to run until maturity.

If you transferred it today, you'd get back £20,142 minus the 90 day (£69) penalty = £20,073.

£20,073 in a new 1 year fixed rate ISA @ 3.2% taken out today would be worth £20,393 on 27/03/23, so you'll be roughly £113 better off (on that particular day) by switching, despite taking the penalty.

You may lose some interest during the transfer process though, depending on the T&Cs of the new ISA provider and whether interest is back-dated or not.

So for larger amounts, I would say it could be worth the effort but for smaller amounts - possibly not. Obviously stick your own exact figures and dates in the online calculator rather than relying on my quick workings, though. And bear in mind rates are continuing to rise so 3.2% may also look low by the end of the year.

phil2010

Is the penalty calculated on the original balance deposited or on the closing balance?

So in the example above would it be 90 days interest on £20k or on £20,142?

intalex

My guess is penalty is calculated on the balance excluding accrued interest at the time of requesting closure, at least that's what Skipton calculate real-time when attempting to "break" a fixed rate ISA.

masonic

Yes, usually the balance withdrawn, or current balance (before closing interest) if the whole account is transferred.

masonic

refluxer said:
You may lose some interest during the transfer process though, depending on the T&Cs of the new ISA provider and whether interest is back-dated or not.

Interest must be backdated. Either to the date on the transfer cheque or electronic funds transfer. Old provider must pay up to this point.

uk1

masonic said:

refluxer said:
You may lose some interest during the transfer process though, depending on the T&Cs of the new ISA provider and whether interest is back-dated or not.

Interest must be backdated. Either to the date on the transfer cheque or electronic funds transfer. Old provider must pay up to this point.

When the penalty for early closing is say 120 days interest, does this always in practice mean “a maximum of 120 days interest” ie if you opened the ISA a week ago you only lose the accrued interest and not any of the capital?

masonic

uk1 said:

masonic said:

refluxer said:
You may lose some interest during the transfer process though, depending on the T&Cs of the new ISA provider and whether interest is back-dated or not.

Interest must be backdated. Either to the date on the transfer cheque or electronic funds transfer. Old provider must pay up to this point.

When the penalty for early closing is say 120 days interest, does this always in practice mean “a maximum of 120 days interest” ie if you opened the ISA a week ago you only lose the accrued interest and not any of the capital?

No, it is a fixed cash fee that can be calculated using the balance, interest rate and number of days. You can end up paying more than the interest you have earned.

uk1

masonic said:

uk1 said:

masonic said:

refluxer said:
You may lose some interest during the transfer process though, depending on the T&Cs of the new ISA provider and whether interest is back-dated or not.

Interest must be backdated. Either to the date on the transfer cheque or electronic funds transfer. Old provider must pay up to this point.

When the penalty for early closing is say 120 days interest, does this always in practice mean “a maximum of 120 days interest” ie if you opened the ISA a week ago you only lose the accrued interest and not any of the capital?

No, it is a fixed cash fee that can be calculated using the balance, interest rate and number of days. You can end up paying more than the interest you have earned.

Thanks.  I think I’ll stay put!  It seemed to me that they couldn’t take “interest” away if it hadn’t actually been earned but nothing ever surprises me!

No_worries

I’ve just changed a £28000 ISA with Coventry BS from 0.85% fixed to a limited access ISA with them at 2.25%.  The penalty was 180 days which at 0.85% was £118, but I’ve gone from earning £238 to £630 so it’s a no brainer AND 6 penalty free withdrawals per year.  I was just going to close it but chatting with them this suits me and retains my ISA status. 

Soot_111

Called into Virgin money today to discuss my existing cash isa.
I am currently on 1.7%.for a one-year fixed rate.
Today i can get 3.5% from them.
 On £96000 savings and a penalty of 2 months interest based on 1.7% it is a no brainer as they say!

Not doing that yet though !


Am gambling savings interest rates will go up further following next Bank of England interest rate decision on November 3rd.
Who knows .