Switch your ISA before the bonus runs out
That attractive introductory offer could be about to expire, leaving you with a disappointingly low rate of interest. Chiara Cavaglieri reports
Sunday 20 March 2011
The banks and building societies want your savings cash and are using every trick in the book to get it. But experts warn against being blinded by introductory bonuses and to review old cash individual savings accounts (ISAs). Last year's best buy is likely to be this year's also-ran.
Only a few weeks are left before the new tax year starts on 6 April. Looking at the current headline rates, there's not much in it – a mere 0.35 per cent separates the top five instant access ISAs. Where the gap widens, however, is on the bonus element.
"At one end of the scale the bonus on the Barclays Golden ISA 3 is just 1 per cent, whereas with the latest deals from Santander and Halifax, it accounts for a very hefty 2.8 per cent and 2.5 per cent respectively of the overall rate," says Andrew Hagger of Moneynet.co.uk.
While this is no problem for savvy savers happy to switch their ISA as soon as the bonus period expires, any hesitation will leave you stuck with a pitiful return on your cash. It could also mean an account offering a better initial return could actually leave you worse off in the long run.
Take the Santander Flexible ISA (issue 3): this pays a healthy 3.3 per cent interest, and if you were to invest the full cash allowance of £5,340 for the new 2011-12 tax year, you would earn £176.22 over 12 months. When the 2.8 per cent bonus falls away, however, two months' worth of interest on that lump sum is a paltry £4.45, bringing the total earned over 14 months to £180.67. In comparison, the Barclays Golden ISA 3 pays 3.25 per cent and after 12 months the interest would be only £173.55, but once the 1 per cent bonus expires, two months' interest at £20.03 brings the running total to £193.58.
These figures should serve as a warning if you have yet to move your money away from one of last year's top ISAs and are coming up to the end of your bonus period. Some of the best buys from March 2010 are set to nosedive when the 12-month bonus period is up. Santander's Flexible ISA will fall from 3.5 per cent to just 0.5 per cent and other accounts are following suit, with Barclays Golden ISA customers facing a 1 per centage point drop from 3.06 to 2.06 per cent. The Nationwide e-ISA, which paid 2.75 per cent last year, is also due to drop by 1 per centage point at the end of June.
If you want to open a new account, be warned that some of these bonuses are getting even bigger – Nationwide's new e-ISA will face a big drop this year with a 1.35 per cent bonus taking the shine off the headline 3.1 per cent rate, fixed until 31 July 2012.
Beyond last year's top accounts, others could now be paying as little as 0.01 per cent as with the Nova ISA Direct from Newcastle BS. Some are offering marginally more at 0.1 per cent, including the Halifax ISA Saver, Santander Easy ISA, West Bromwich BS Easy Access ISA and Virgin Money Cash ISA.
"The rates on variable ISAs currently range between 0.01 per cent and 3.35 per cent. On this year's allowance of £5,100 that is the difference between 51p in annual interest and £274," says Michelle Slade of comparison site Moneyfacts.co.uk.
With so many accounts languishing on low rates, it's vital to find out what rate your existing ISAs are on. This can be easier said than done with many providers using similar names for different accounts to make it that little bit more difficult, but new rules require providers to write to customers before a bonus expires.
If you know your money is struggling, switch to a better rate by finding an account which permits transfers. Not all do and, indeed, some of the highest-paying accounts don't. The top accounts tend to include a temporary bonus, so remember you will probably need to transfer the cash again once that expires.
"Since the Bank of England decimated interest rates in 2008, using bonuses has been the way that most cash ISAs have been structured," says Dan Clayden from independent financial adviser Clayden Associates. These accounts prey on investors' inertia so people have got to be prepared to give themselves time if they want to move to another account."
At the moment, the best buys accepting transfers are the Nationwide e-ISA mentioned above, the Halifax ISA Direct Reward (which pays 3 per cent including a 2.5 per cent bonus for 12 months) and the Kent Reliance 2012 Bonus Cash ISA, which pays 2.87 per cent including a 2.12 per cent bonus until 30 June 2012.
Transferring is relatively straightforward. You can contribute to only one cash ISA in any tax year, but existing ISA holdings can be moved to another provider as often as you like. If you have old ISA money on a rubbish rate, simply move it to another bank offering a more attractive rate, but never simply withdraw the money as you need to follow the correct procedure. Your new provider will pass on the relevant paperwork and arrange the transfer which should take no longer than 15 days to complete.
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Questions of Cash: Why was my case ignored by My Civil Service Pension?
Offset your mortgage and save thousands
Women to lose benefits from contracted-out pension scheme
- 1 Vladimir Putin says Russia will fight for the right of Palestinians to their own state
- 3 Germanwings plane crash: I have depression. That doesn't make me a psychopath
- 4 The West has it totally wrong on Lee Kuan Yew
- 5 The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station