ISA Maturity Date For Delayed Transfers

theFlash

With a ISA transfer for delayed transfers (i.e. only transfer upon maturity), what should the maturity date be for the new account, if its a 1yr fixed?

Background:

Recently a relative applied to transfer an ISA which was maturing within a month to an new provider, which offered a competition 1yr fixed rate ISA.

They called them about 4 weeks before the old one matured, and asked if they needed to wait until just before the old account matures before applying for the transfer. They were told that they could apply now, as it was within a month, and the new account would not actually initiate until the old provider maturity date completed, if they tick the relevant "wait for notice period" box on the application.

They did this, and the transfer happened within days after maturity date of old account, as expected. However, the start date and maturity date on the new account is based on the date of application and not the maturity date of the old account. This, in effect means its an 11 month fixed and not 12, as they applied nearly a month in advance.

This seems to contradict the advice, and possibly the normal expected terms to me.

The person had no access to that account online until the transfer completed.

What is correct?

I spoke to the bank and got several confused responses -

"its backdated" - makes no sense as the account was, in effect, empty with the new provider if it in fact opened on day of application (which was not the initial understanding), and besides, the old one paid in interest during that last month, so was a variable balance. I understand backdating is valid for immediate transfers though.

A.I. tool seems to think that the maturity date should either be 12 months from the maturity date of the old provider or 12 months from when the monies appeared in the new account. It doesn't mention that it would be from application date.

So either the initial advice was incorrect, or the bank system has calculated the wrong maturity date, which would be hard to correct I guess.

*Confused* Any advice appreciated as we're due a call from the bank to explain.

refluxer

I don't have time to analyse all of the fixed rate ISA accounts I've had over the years but the fixed rate period for a few I picked at random started on the date the transferred funds were credited to the account rather than the date the account was opened. I always wait until fixed rate ISAs mature before requesting a transfer though, so I don't know whether arranging transfers in advance of a maturity date makes any difference to this type of scenario. Hopefully others who typically arrange transfers in advance can advise on this.

In the meantime, it occurs to me that normal (non-ISA) fixed rate accounts can fall into both categories (some start on the day the account is opened and some on the date of the first deposit) so its possible those banks and building societies who start their fixed rate periods on the date of account opening may also apply this to their fixed rate ISAs.

Either way, different ISA providers will have different policies so I personally don't think it's worth worrying about, although you would think they would mention this in their T&Cs (have you read them thoroughly ?). It's not uncommon for customer service staff to be ill-informed when it comes to the intricacies of cash ISAs and the whole experience of chasing this up is likely to be pretty frustrating, as you're already finding out. While checking that a mistake hasn't been made seems sensible, if this isn't an error then I would be tempted to chalk this down to experience and not choose this provider again if you don't find this acceptable. If interest rates continue to rise, then getting out of a fixed rate account a month earlier than expected could turn out to be a good thing 🙂

theFlash

What a helpful reply. Thank you for taking the time to write that.

The relative did not wait for the maturity date before arranging the transfer, as the old building society's default option was to put it into another 1yr fixed rate (with lower interest) and the relative was worried about getting it out without penalty.

I will report back on what they say when they call back hopefully today.

refluxer

https://forums.moneysavingexpert.com/discussion/comment/82021434#Comment_82021434

Yes - the policy of defaulting to another similar fixed rate account is annoying, but thankfully fairly rare. It may be worth letting them know that one way round this in future is to request an internal transfer into an easy access cash ISA on maturity if the same provider offers one (most building societies do) from which they can transfer without penalty at their leisure. This can also be a good way of avoiding so-called 'maturity' (low-paying) easy access accounts, which is the more common default option when maturity instructions aren't submitted.

theFlash

We had a call back from the building society. It seems that the interest is indeed backdated to the day of application, even though the "only action after notice period" was ticked. The manager agreed that this made no sense and that it was the first she'd heard of in 20 years of working there.

So, in effect, they have interest being paid by two different building societies in those 4 weeks, and 11 months remaining of their fixed 1 year ISA even though the monies have only just been transferred.

The result, financially works out the same I guess. The only difference is that the account is released one month earlier - good, as you say, if the interest rates are higher. Not so if they are lower.

Either way I was impressed by the thoroughness of the investigation in the end.

Next time think they'll make sure maturity has completed before transferring.

Thank you so much for your advice @refluxer