Withdraw ISA and transfer before maturity?

Adly812

I opened a cash ISA at the end of April for a poor 1.9% interest rate (2yr fix). Given the current market interest rates I’m thinking about transferring it to a different provider. The penalty is 180 days interest for early withdrawal. 

Does anyone know how they calculate this penalty, as I’m told I could lose some of my capital if I transfer now. I’m not sure why, as in my understanding I assumed that given the account was opened 199 days ago, I would only lose the interest I would have made on 180 days? 

eskbanker

If you've held the account for more than 180 days and the withdrawal penalty is the equivalent of 180 days interest then you won't lose any capital - perhaps the wording you were looking at was generic, catering for withdrawals both during and after the first 180 days?

Albermarle

If you transferred out before you had held the account 180 days, then you would lose some capital

Adly812

Thank you for taking the time to reply. I also assumed that given I have held the account for longer than 180 days, I would not be at risk of losing my capital. I do believe the customer service rep. that I spoke to after a 35 minute hold gave me inaccurate information and I left the phone call non the wiser. I’m definitely going to transfer the Isa to a better rate. 

Band7

Paying a penalty for early transfer isn't necessarily bad. In fact, it is very good in many cases!

You need to do some maths to figure out whether it's worth your while to take the penalty .Have a look here: https://forums.moneysavingexpert.com/discussion/6401118/what-is-the-maths-for-ditching-fixed-and-paying-penalty

eskbanker

Adly812 said:

Thank you for taking the time to reply. I also assumed that given I have held the account for longer than 180 days, I would not be at risk of losing my capital. I do believe the customer service rep. that I spoke to after a 35 minute hold gave me inaccurate information and I left the phone call non the wiser. I’m definitely going to transfer the Isa to a better rate. 

With the best will in the world, front-line contact centre workers are rarely the experts that callers expect them to be, so it's always better to read the product Ts & Cs than to be guided by a verbal steer from someone who may not be fully au fait with all the nuances of each product offered by their employer (even though they ought to be....).

Adly812

Yes penalty will be about £95, leaving me with my capital and about £15 interest. Which is not ideal  . But it’s worth moving from a 1.91% into a 4.4% fixed as the interest is way more over the two years, so I’ll transfer everything over in full given that you can only use one Isa provider per tax year 

Albermarle

Adly812 said:

Yes penalty will be about £95, leaving me with my capital and about £15 interest. Which is not ideal  . But it’s worth moving from a 1.91% into a 4.4% fixed as the interest is way more over the two years, so I’ll transfer everything over in full given that you can only use one Isa provider per tax year 

You can open as many ISA's as you like during the tax year, and you can transfer as many ISA's as you like as well.
The rule is that you can only contribute new money to one cash ISA per tax year.

There is a sub forum for ISA's. Worth a read through to get up to speed with ISA rules as lots of people ask questions about them .
ISAs & tax-free savings — MoneySavingExpert Forum

Sensory

eskbanker said:

With the best will in the world, front-line contact centre workers are rarely the experts that callers expect them to be

When I renewed my Sky package recently, the phone representative told me 0800 numbers would have a cost to call, and that because I opted not to receive marketing notifications, I would also not receive email notification of when my package was close to its end date.

Bless him, he sounded like a spring chicken who hadn't received any training.

Adly812

It’s quite a worry though as sometimes the lack of knowledge and experience can confuse customers who make decisions based on the information they receive. Speaking to companies about financial queries and seeking advice is supposed to be helpful and reliable. I’m learning that sometimes it’s better to spend more time reading and researching via the internet to find your own answers rather than relying on people who are most likely learning or untrained. It’s a worry.

eskbanker

Adly812 said:

Speaking to companies about financial queries and seeking advice is supposed to be helpful and reliable.

'Supposed' by whom?  Also worth bearing in mind that advice is a regulated activity for financial institutions, which they'll charge for.

Adly812 said:

I’m learning that sometimes it’s better to spend more time reading and researching via the internet to find your own answers rather than relying on people who are most likely learning or untrained. It’s a worry.

I'd argue (as I did in the earlier post) that it's always better to read Ts & Cs than to rely on the outcome of a verbal conversation....