Should I transfer money out of the credit card and put it in an ISA?

MartaUK

I have received an offer from the bank to transfer money from my credit card to my bank account. This transfer would be at 0% interest from now until 1 July 2025, but it comes with a 3.3% transfer fee. I would need to make minimum monthly repayments on the card equivalent to 3% of the remaining balance and of course clear the remaining balance before 1st July next year. I am considering whether it would be beneficial to transfer this money from my credit card to a savings account with a rate of 5.17% AER for a year (tax-free ISA), where I can make three withdrawals annually without penalty. I have some income that should cover the monthly minimum payment without needing to withdraw from the savings account. In June next year I would take the cash out of ISA and repay the credit card balance in full before any interest kicks in. Would this strategy be advisable? I understand that my ISA interest is always tax free and it does not reduce the personal savings allowance of £1000? My yearly interest on existing savings is edging towards the £1000 and I'd like to avoid having to pay any tax.

Thank you in advance for all your advice.

Veteransaver

Assuming it's a variable rate ISA so the rate could potentially drop a lot below 5.17%.
If the rate drops on average below 3.3% until July 2025 then if will cost you money.
An alternative strategy which often works better is to get a 0% purchase card. Put all your normal purchases on that, and put the cash in the ISA. Same principal but you avoid the balance transfer or cash fee.

Brie

Sounds to me like you've got it covered!!

Senseicads

Have a look at the Stoozing pages here on MSE.  This is exactly what they do.  Takes discipline and an eye for detail though. 

Royoftherovers2024

Veteransaver said:

Assuming it's a variable rate ISA so the rate could potentially drop a lot below 5.17%.
If the rate drops on average below 3.3% until July 2025 then if will cost you money.
An alternative strategy which often works better is to get a 0% purchase card. Put all your normal purchases on that, and put the cash in the ISA. Same principal but you avoid the balance transfer or cash fee.

I've just done exactly that, just got a Lloyd's credit card with 0% spending for 19 months with £6k credit limit, intend to spend as normal on it and bank all other money into my 5.1% saving account.

MartaUK

Thank you very much, everyone. @Veteransaver, you're right, this crossed my mind too. I already have a 0% purchase card, but it is maxed out and they don't want to increase my credit limit. I'll wait a bit longer and apply for a new 0% purchase card in a few months; it'll be a better profit this way.

surreysaver

Or, if you've maxed out your purchase card and cannot get a limit increase, maybe do a balance transfer instead of a money transfer? Then carry on spending instead.
 See if they will do it for less than the 3.3% fee. 
Depends how much longer you've got to go on your 0% purchase offer, though 

MartaUK

That’s a great idea, @surreysaver! Thank you for sharing it, as I hadn't considered this option before. The balance transfer comes with a 3.1% fee from the same bank (in contrast to the 3.3% fee on money transfer) and also offers an additional three months until October 2025. With over half a year remaining on the 0% purchase offer, I'll easily be able to max out the card again, especially since I'm in the midst of house renovations and anticipate more costly purchases ahead.

surreysaver

You could always do the balance transfer, and money transfer the rest of your credit limit. I do this regularly, just maximising what I can squeeze out of the banks