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

theFlash

Back at this again @refluxer and will take your advice and wait for maturity this time.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82022172#Comment_82022172

Despite the building society talking of interest being backdated, I find it hard to believe that they'd be paying interest on money for four weeks when it wasn't in their account - have you reconciled what was paid to ascertain if that's literally what they meant?

Separately, basing the maturity date on the account application or opening date, rather than the date of a transfer into it, seems reasonable to me but, as above, the answer should always be in the product terms…

theFlash

https://forums.moneysavingexpert.com/discussion/comment/82097917#Comment_82097917

That is a different account that hasn't matured yet, but I agree it didn't seem to make sense at all. I have made a note to check the amount is correct when it matures. Either way I will not be migrating accounts before maturity and will likely avoid those deals where they put your money into another fixed rate with penalties if you don't instruct to transfer.

I don't agree with you on the maturity date in this situation though - the account was not able to be used or even listed as open for nearly a month after application - in effect you are delaying its opening until the monies are transferred, when it magically appears with an account number etc. I understand that you are legally supposed to have access to the full 12 months interest as that is the agreement. The product terms were dissected in detail, and appeared ambiguous on such transfers.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82098561#Comment_82098561

The fact that an account was opened with a view to later transferring money in on maturity of a different account doesn't in itself mean that the new account can't be used until then - I don't believe there's any sort of overarching legal entitlement at play here and it'll just be based on the product terms.

clairec666

Depending on the provider, "1 year fixed" doesn't necessarily mean "one calendar year". E.g. Virgin Money currently have an ISA on offer which matures on 24th August 2027, so most people would get slightly more than a year. Check the specifics of the account. Just picking another provider at random Skipton says the 1 year term begins "from the first payment into the account", so you would expect to get a full 12 months from the date the transfer completed.

Ignore what AI says, it's probably just pulling the T&Cs from a couple of banks and may not be the same as the one you're talking about.

It would be useful to know which bank you're talking about.

theFlash

https://forums.moneysavingexpert.com/discussion/comment/82098616#Comment_82098616

I am not relying on AI at all. And we studied the product terms in great detail. The maturity date was not a fixed one, it was a year from opening (or is it transfer…hence the ambiguity in the terms). And there was no access to the account on application - no account number or online account was visible, until two days after the transfer took place.

If it was that obvious, then the manager I spoke to wouldn't have had to consult with head office and come back with a lengthy explanation, highlighting that it was something she hadn't known in 20 years.

I personally think its a mistake, but we have been reassured by them and will calculate the interest on maturity.