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

BirdBrain

I've paid a 90-day penalty and transferred to another fixed rate with the same provider. As my luck would have it, their rate increased dramatically the day after my transfer. Would the 14-day cooling off period be able to work in my favour? Does this apply to transfers or only when a cash ISA is first subscribed to with new money?

masonic

BirdBrain said:

I've paid a 90-day penalty and transferred to another fixed rate with the same provider. As my luck would have it, their rate increased dramatically the day after my transfer. Would the 14-day cooling off period be able to work in my favour? Does this apply to transfers or only when a cash ISA is first subscribed to with new money?

Check that the account in question has a cooling off period, as not all do. Cooling off can apply to transfers, but only if your previous ISA manager is willing to reopen your old account and accept the money back. You do not want them to return the money to you directly as it would lose its ISA status. If the old provider agrees to accept the money back, there are no rules around backdating interest during the transfer back.

If you are planning to chase rates upward, then it is unwise to be in fixed ISAs. Every few weeks you'll see a better product available and want to transfer again.

subjecttocontract

I've got £85K in a Kent BS 1 year fixed ISA at 0.94% that ends beginning of Jan 23. I've decided to sit it out until Jan 23 when interest rates are likely to be considerably higher than today.

SickGroove

Hi all, 

Someone kindly directed me to this thread...

So, I stupidly took out a 2 year fixed cash isa with Paragon back in April at a rate of 1.64% which at the time seemed good compared to the previous 0.57% I was getting. How easy is it to break the term with Paragon? 

What are the usual penalties and can you transfer the whole amount to a new provider (I put in the max 20K this April) so have about 80K in total as I also transferred in 60K from a previous provider.

If I open a new fix elsewhere, would I just select transfer from Paragon for the whole 80K as I obviously have already put in this year's 20K allowance into Paragon?

Is it worth calling Paragon (I've already secure messaged them) to see if I can just stay with them on a better rate perhaps? Also, If I stayed with Paragon, could they transfer the whole amount to the new ISA or does some need to remain in the original ISA I took out in April? 

Never done this before so any advice much appreciated!

Thanks in advance.

masonic

SickGroove said:
Is it worth calling Paragon (I've already secure messaged them) to see if I can just stay with them on a better rate perhaps? Also, If I stayed with Paragon, could they transfer the whole amount to the new ISA or does some need to remain in the original ISA I took out in April?

There's no harm in trying, as it is not unprecedented for a provider to waive the penalty if you re-fix with them - just uncommon.

Interest rates are probably not going to peak for another 3-6 months, so the optimal course of action would probably be to break your fix for an easy access account, then fix when we're no longer in the 'the only way is up' phase. If you can transfer penalty-free to a new fix, however, this would be a no-brainer.

Albermarle

Interest rates are probably not going to peak for another 3-6 months, so the optimal course of action would probably be to break your fix for an easy access account, then fix when we're no longer in the 'the only way is up' phase.

If someone was looking to take a longer fix, say 5 or even 3 years, is there not the possibility that these longer term fixed rates might start dropping, before the 'only way is up' phase ends? Because of course of a potential anticipation that rates will drop in future. (which is not for sure of course)

Could be at that point a 5 year fix could be lower than a one year one? In which case anybody planning on a long fix might be better not to wait too long? Although it is all a bit of a gamble of course,

masonic

Albermarle said:

Interest rates are probably not going to peak for another 3-6 months, so the optimal course of action would probably be to break your fix for an easy access account, then fix when we're no longer in the 'the only way is up' phase.

If someone was looking to take a longer fix, say 5 or even 3 years, is there not the possibility that these longer term fixed rates might start dropping, before the 'only way is up' phase ends? Because of course of a potential anticipation that rates will drop in future. (which is not for sure of course)

Could be at that point a 5 year fix could be lower than a one year one? In which case anybody planning on a long fix might be better not to wait too long? Although it is all a bit of a gamble of course,

A 5-year fix is already lower than a 3-year fix, and last week it was a 2-year fix that was the highest rate. The trend seems to be not only higher than previously predicted rates, but also a prolonged period of high rates. I've assumed in the above post that the new fix would be short term. There is considerable risk in fixing for a long period of time, albeit in an ISA it can at least be broken with penalty.

Looking at the latest forecast courtesy of the NIESR below, a 5-year fix taken out today at BoE base rate +2.3% might beat a couple of consecutive shorter fixes if rates do come down in the manner currently predicted. The trouble is up until now the estimates have only put rates higher for longer, never the converse, so one would have to have some faith that this time they've not underestimated. Given this forecast would assume the recent U-turn hadn't taken place, maybe there is more of an argument that this forecast is pessimistic (in terms of the necessity for higher rates), but so far the only measure that has been dropped from the budget was the 45% tax rate, was arguably the most affordable one (counterbalanced by fiscal drag).

Personally, I would not fix for 5 years, and if I did it would be through a gilt that I could sell for profit should rates come down more/sooner than expected.

SickGroove

So, I've just checked with Paragon & there is a £680 (180 day penalty) to transfer my 2 year fixed cash ISA I opened in April this year at 1.64%. 

They also said the whole amount can be transferred to a new provider, which includes the 20K I added when opening in April for this tax year plus the 60K I transferred in at the same time from a previous provider from my previous years ISA'S

I asked about staying with them & waiving the penalty charge but they weren't budging.

So, it seems a no brainer to switch but when & what to?

Easy access or 1 year fixed or just wait til November when rates might increase again?

No_worries

Imho I’d wait …? I’m no expert but £680 quite a hit isn’t it?

PaulRdl

I'm in the same boat with Coventry Building Society. After my last Fixed Rate product matured at the end of May, my new Fixed Rate account defaulted into what seemed to be their most competitive offering of 1.75%, fixed til Sept 2024. Within 3 months they were offering 2.75% fixed, also til Sept 2024!

This means that, based on the 180 days loss of interest clause, if I moved to another account STILL WITH THEM I'd have to take a hit of £688, leaving me with £300 less than I'd put in - but this could still be offset against the more competitive interest rate! From 7th October, they're also now offering a variable rate of 2.25% on a limited access account, which probably makes more sense...

I rang to say is this fair, when I'd be more that happy to stay with them, but they just pointed out that the 180 day clause would still apply(!), so my loyalty in remaining with them has not exactly been rewarded, and they appear unwilling to compensate me in any way for having taken out what has quickly turned out to be a very uncompetitive product. As a result, it looks like I will have to grit my teeth and take the hit, and will probably opt for the variable rate of 2.25% in the hope that it will eventually offset the £688 I have had to write off.

It would probably have cost me less if I'd gone out and smashed up an arcade!