Cash ISA transfers speed up
Cash ISA transfers should be speedier and more efficient this year following three of the UK’s biggest banks signing up to a new electronic scheme.
Lloyds Banking Group, Abbey and Royal Bank of Scotland have all confirmed that they are adopting the new electronic ISA transfer process, developed by the British Bankers' Association (BBA). Last year, ISA customers suffered severe delays of up to six months and, in some cases, saw their money temporarily lost as a result of poor banking systems.
Although individuals can only open one ISA per tax year, some banks and building societies allow you to transfer cash ISAs from a previous tax year from one provider to another without having an effect on the current year’s allowance.
As a result of the chaos in 2008, the BBA drew up a list of guidelines to help improve the transfer process, which included a deadline of 23 working days for funds to be transferred. However, the fact that providers transfer money via cheque means the process is still likely to be a lengthy one for many savers.
Kevin Mountford, head of banking at independent comparison site moneysupermarket.com, says: "It is incredible in this day and age that these transfers have relied on posting cheques. No wonder the process has been rife with delays and complaints.”
The move by three big banking groups to adopt electronic transfers should speed up the process. Lloyds Banking Group, which includes Lloyds as well as Cheltenham & Gloucester and Halifax, boasts a quarter of the ISA market.
Its other brands, such as Birmingham Midshires and Intelligent Finance, will adopt electronic transfers over the coming months. A spokesman for Abbey says it plans to roll out electronic transfers to its Alliance & Leicester and Bradford & Bingley.
The new process means funds will be sent from one from provider to another via BACS rather than a cheque in the post. The BBA estimates that during the peak ISA season, up to 1,000 transfers a day could move more efficiently thanks to electronic transfers.
Colin Walsh, managing director of savings and investment at Lloyds Banking Group, says: "The industry-wide delays experienced by customers last year were largely due to the outdated cheque and postal system on which the ISA transfer market was dependent. The move to electronic transfers is an important step forward.”
However, until more players sign up to the scheme, thousands of savers could experience delays again in the new tax year 2009/10.
Mountford says a speedier ISA transfer process will not be a reality until all providers are involved.
And Walsh adds: “We have always said this needs to be an industry-wide initiative and as and when other providers introduce the electronic transfer process more customers will be able to reap the benefits.”
|Variable-rate ISA||* 1% AER (balances from £10)
* 1.5% (£21,000 plus)
|One-year fixed ISA||* 3% (balances £9,000 - £29,000)
* 3.2% (£30,000 plus)
|Cheltenham & Gloucester|
|Two-year fixed ISA||* 2.5% (balanaces from £100 - £14,999)
* 3% (£15,000 - £29,000)
* 3.5% (£30,000 plus)
|Variable-rate Direct Reward ISA||* 3% (balances over £1,000)|
One-year fixed-rate ISA
|* 3.1% (balances £10,000)
* 2.6% (£500)
|Two-year fixed-rate ISA||* 3.1% (balances over £500)|
|Three-year fixed-rate ISA||* 3.2% (balances over £500)|
|Five-year fixed-rate ISA||* 3.35% (balances over £500)|
|Variable-rate Direct ISA||* 2% (balances from £1)
* 3% (£9,000 plus)
|Variable-rate Super Direct ISA||* 5.5% (balances from £1)
When you put an equal amount into a qualifying Abbey investment
|Variable-rate e-ISA||* 3.25% (balances £1 - £9,999)
* 3.51% (£10,000 plus)
|Variable-rate cash ISA||* 2% (balances of £27,000 plus)|
The ISA rules allow investors to transfer money from an uncompetitive savings account with one provider into one from another provider that pays a better rate of interest. The bank to which you are transferring the money must do the transfer process, as withdrawing the money from the ISA wrapper means you lose the tax-free status. You can transfer a cash ISA into a stocks and shares ISA, but not the other way around and the current tax year’s cash ISAs must be moved whole to a single provider, but previous years’ ISAs can be split between new providers.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Created in 1968, BACS is a not-for-profit industry body, owned by 16 of the leading banks and building societies in the UK and Europe. All direct debits, standing orders, credit card payments, personal loans and the vast majority of salary cheques are processed through BACS. In 2010, 5.7 billion UK payments with a total value of £4.06 trillion were processed through the system.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.