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

SickGroove

I'm thinking of transferring my 2 year Paragon @ 1.64% over to the just launched Shawbrook 1 year fix at 3.70% even with the £650sh penalty it works out better I think!!!

I already have that 6 month fixed savings account with Shawbrook so can i just open the ISA by logging into my Shawbrook account & applying or do I need to start from scratch?

PaulRdl

I wonder whether clauses such as the 180 days loss of interest on fixed rate products could become a mis-selling issue in due course?
I feeel that it's quite hard to justify, particulalry when you are not even moving to another supplier.

Albermarle

PaulRdl said:

I wonder whether clauses such as the 180 days loss of interest on fixed rate products could become a mis-selling issue in due course?
I feeel that it's quite hard to justify, particulalry when you are not even moving to another supplier.

Absolutely no possibility of that. The products are very clearly Fixed Rate, and you take a gamble on which way interest rates will develop in future. If rates had gone down you would not be complaining. 
You can also just stay in easy access accounts if you prefer to avoid fixed rate accounts.

masonic

SickGroove said:

I'm thinking of transferring my 2 year Paragon @ 1.64% over to the just launched Shawbrook 1 year fix at 3.70% even with the £650sh penalty it works out better I think!!!

I already have that 6 month fixed savings account with Shawbrook so can i just open the ISA by logging into my Shawbrook account & applying or do I need to start from scratch?

Holding the Paragon ISA to term will be much more expensive than paying the penalty now. Personally, I'd go easy access for a while - you can currently get north of 2% - then fix later in the year or early next year when rate rises slow.

masonic

PaulRdl said:

I wonder whether clauses such as the 180 days loss of interest on fixed rate products could become a mis-selling issue in due course?
I feeel that it's quite hard to justify, particulalry when you are not even moving to another supplier.

Fixed term should mean fixed term - not possible to access the funds until maturity. However, HMRC in its wisdom decided to force ISA managers to permit access at any time. This creates a cost on the ISA manager, since your money is already committed to lending that will provide a return commensurate with the rate offered, they have to finance your repayment by other means.

To solve the issue, either HMRC could permit fixed term and notice to mean what they say (just as in normal savings accounts), or all cash ISAs should be easy access. Then there would be no need for penalties.

Ocelot

Interesting thread. I knew that you could close your fixed rate ISA with a loss of interest, but didn't realise you could transfer it out to another provider during the term and still retain the tax-free status. I assumed you had to close it and that was that, you'd lost the tax free status. 

silvermum

It feels as if there is a massive need for a simple spreadsheet/tool that allows you to enter sum saved/ current fixed term/ penalty/ interest rates etc to quickly assess whether breaking a FRISA is worth it in favour of a newer product.

Does such a tool/ spreadsheet exist anywhere?

I'm no Maths/Excel whizz, or I'd create one myself...

<Hmm... pondering as I look at my Computer Science grad son over there, on his laptop!>

Ocelot

The more I look into this the more it seems a no-brainer, assuming all providers allow this.

For eg, I have 52k in a Coventry isa not maturing until 30/11/23, paying 0.85%, which is 443 a year. If I sacrificed, say, 9 months interest (310 say) and put it in a 4% ISA, I could be getting 2087 a year, gaining around 1300 a year, even after the early redemption cost.

Anyone know if my assumptions are correct? Thanks.

masonic

Ocelot said:

The more I look into this the more it seems a no-brainer, assuming all providers allow this.

For eg, I have 52k in a Coventry isa not maturing until 30/11/23, paying 0.85%, which is 443 a year. If I sacrificed, say, 9 months interest (310 say) and put it in a 4% ISA, I could be getting 2087 a year, gaining around 1300 a year, even after the early redemption cost.

Anyone know if my assumptions are correct? Thanks.

All providers must allow it, all they can vary is the size of the penalty. Effectively you'd be getting almost no interest this year, followed by over £2k interest up to the original maturity date, so it would be equivalent to interest of about 2% over 2022-2023, which is considerably better than 0.85%. There's probably a lesson to be learned about not taking out a long term fix at such a low increment above the easy access rate (top easy access ISA on 30/11/20 paid 0.5% and on 30/11/21 paid 0.67%). It gives almost no margin for rates to rise.

Ocelot

masonic said:

Ocelot said:

The more I look into this the more it seems a no-brainer, assuming all providers allow this.

For eg, I have 52k in a Coventry isa not maturing until 30/11/23, paying 0.85%, which is 443 a year. If I sacrificed, say, 9 months interest (310 say) and put it in a 4% ISA, I could be getting 2087 a year, gaining around 1300 a year, even after the early redemption cost.

Anyone know if my assumptions are correct? Thanks.

All providers must allow it, all they can vary is the size of the penalty. Effectively you'd be getting almost no interest this year, followed by over £2k interest up to the original maturity date, so it would be equivalent to interest of about 2% over 2022-2023, which is considerably better than 0.85%. There's probably a lesson to be learned about not taking out a long term fix at such a low increment above the easy access rate (top easy access ISA on 30/11/20 paid 0.5% and on 30/11/21 paid 0.67%). It gives almost no margin for rates to rise.

Good point. During Covid times the base rate was 0.1%, so didn't know whether it would rise before the end of the term.

I actually have 5 ISAs and 3 FR Bonds maturing next year on relatively low rates, so food for thought.