Is it worth changing to higher rate ISA?

XDA

I currently have an ISA paying 1.64% but I’m looking at transferring it over to a 2.25% ISA - I’d see an increase of around £50 per month in interest if I did.

My existing ISA has a notice period for withdrawals which I wouldn’t be sticking to so I’d lose around £130 in interest if I transferred.

I’d lose about £130 by transferring but I would earn £50 extra in interest.

The money will be used for a house deposit but I don’t know when that will be, likely not within the next 6 months unless the right house comes up.

Or do I wait and see if my existing provider increases their rate next month?

refluxer

So if you've done your sums right, it'll take nearly 3 months to break even. What is the notice period on your ISA ?

Has your current provider increased the interest rate many times this year, presuming that it's variable ? That would at least give you an idea of whether a rise next month is likely or not.

XDA

refluxer said:

So if you've done your sums right, it'll take nearly 3 months to break even. What is the notice period on your ISA ?

Has your current provider increased the interest rate many times this year, presuming that it's variable ? That would at least give you an idea of whether a rise next month is likely or not.

Yes it’ll take 3 months to break even.

I have a 30 day notice period.

Yes, they’ve increased in March, May, June and September. From 0.90 in March to 1.64 in September. That to me suggests an increase is likely?

What I don’t know is when I’ll need the money. Even if I put an offer in on a house next week then I’m probably looking at 2-3 months before I need to use the money.

refluxer

Yes, that seems like a decent number of rate increases which at least raises the chance of further rises, however it's unlikely to increase from 1.64% to 2.25% I wouldn't have thought.

If you think you might need the money in the near future but you're not sure when, then an ISA account with notice might not be the best option and moving to an Easy Access Cash ISA at a higher rate would be no-brainer.

When you say notice period for withdrawals, I take it that also applies to ISA transfers ? Unless I'm missing something, it sounds like you'll be better off giving notice now and transferring in a month's time than you would paying the penalty and transferring now. Rates elsewhere are likely to be higher in a month's time than they are now too, especially with the next BoE meeting being on the 3rd Nov.

XDA

refluxer said:

Yes, that seems like a decent number of rate increases which at least raises the chance of further rises, however it's unlikely to increase from 1.64% to 2.25% I wouldn't have thought.

If you think you might need the money in the near future but you're not sure when, then an ISA account with notice might not be the best option and moving to an Easy Access Cash ISA at a higher rate would be no-brainer.

When you say notice period for withdrawals, I take it that also applies to ISA transfers ? Unless I'm missing something, it sounds like you'll be better off giving notice now and transferring in a month's time than you would paying the penalty and transferring now. Rates elsewhere are likely to be higher in a month's time than they are now too, especially with the next BoE meeting being on the 3rd Nov.

No, I don’t see it matching 2.25% either.

In hindsight, a notice account was probably the wrong choice. At the time the rate was the best paying by quite a margin and I was planning on just leaving it there until a housing deposit was needed - I thought 30 days would be adequate once the mortgage process started. I didn’t envisage interest rates to go the way they have. Lesson learned!

Yes, the notice period also seems to apply to ISA transfers according to the T&C’s:

“You can make unlimited withdrawals, either by giving 30 days' notice, or without giving notice where a deduction of interest equivalent to the notice period will apply. Your money can be returned to your nominated account, transferred to any other Personal Savings accounts you hold with us that allow deposits or transferred to another ISA provider.”

I’ll look to give notice now and transfer it in a months time somewhere else - I don’t know why I didn’t think of that myself! 

Really appreciate your replies. 👍🏻