I have an emergency savings pot in an old easy access Isa with a poor interest rate.
I’m sure I can do better by moving it, so what are the best ‘transfer in’ easy access Isa options at the moment.?
Would I have to top up the fund to get it accepted by a new Isa provider, or can I just move it?
Tax free wrapper: Each tax year you can save or invest up to £20,000 within an Isa
Ed Magnus of This is Money replies: It’s great that you have an emergency savings pot in an easy-access savings account, as you will be able to withdraw funds as and when you need.
But you are wise to be hunting out a better rate, with savings interest having reached its highest levels for more than 10 years.
You can switch your cash Isa account to a new provider, but you are correct to mention the ‘transfer in’ element.
Under current rules, cash Isa providers must allow transfers out, but there is no obligation to accept transfers in. Therefore, not all Isa providers do so.
We look at the best interest rates you could get, and explain the rules around transferring money from an old Isa to a new one.
– Check out the best easy-access cash Isa rates on This is Money’s best-buy tables
What are the best easy-access Isa rates?
The average easy-access cash Isa currently pays 1.26 per cent, according to Moneyfacts.
If you’re currently earning interest around this level or even less, you should definitely be looking to move your money elsewhere.
There are currently a number of providers paying in excess of 2.25 per cent: a whole percentage point more than the average deal. But you can do even better than this.
In terms of the best possible deal, those who bank with Virgin Money, Clydesdale Bank or Yorkshire Bank have access to an exclusive Virgin Money easy-access cash Isa deal paying 3 per cent.
If you want this market-leading rate, you’ll need to set up a free Virgin M Plus current account.
The cash Isa account allows you to transfer in from your current provider. If you want to transfer your current year’s subscriptions, then the full amount must be transferred.
Follow the rules: If you’re transferring from one Isa provider to another during a tax year, it won’t affect your annual Isa allowance. Just be sure to follow the correct transfer process
In terms of the other top deals, there are three building societies: Nationwide, Principality and Scottish Building Society, which all have deals paying 2.5 per cent and allow for transfers in.
Principality’s deal includes bonus interest of 0.4 percentage points paid for the first 12 months.
Nationwide’s one-year triple access account comes with a caveat, in that it only allows up to three withdrawals during the 12-month term.
For those who make more than three withdrawals their rate will plummet to 0.75 per cent for the rest of the term.
Scottish Building Society’s 2.5 per cent deal has no such constraints and can be opened with a minimum deposit of £100.
It’s worth pointing out that all these providers are FSCS-backed, meaning your cash will be protected up to £85,000 under the deposit guarantee scheme.
What are the rules when saving into a cash Isa?
It’s worth being aware that you can only have one active cash Isa every year.
This means you can’t open multiple cash Isas in a single tax year and benefit from the tax-free savings allowance in each one.
It also means that if your existing cash Isa was opened in the current tax year, you will need to transfer the entirety of it to the new provider and close the old account.
However, if you’re transferring Isa funds made during a previous tax year then you can transfer as much as you wish without it impacting your current annual Isa allowance.
In terms of the question about topping up the fund, you don’t need to do this in order to get accepted by the new provider.
One major thing to avoid is withdrawing your money from an Isa. If you do this, your money will lose its tax-free status – so be sure to follow the correct transfer process.
The best way to transfer is to contact the new provider and complete an Isa transfer form.
Who is a cash Isa right for?
The fact that your easy-access savings are in an Isa account will mean any interest you earn is free from tax.
That said, it’s worth remembering that if you’re a basic rate taxpayer you can earn up to £1,000 in interest each year without having to pay tax. If you’re a higher rate taxpayer you can still get up to £500 of interest tax free each year.
However, if you’re an additional rate taxpayer earning £150,000 or more (falling to £125,000 or more from next April) you don’t get a personal savings allowance, so a cash Isa will definitely make sense under those circumstances.
The best non-Isa easy-access savings deal is with Al Rayan Bank and pays 2.81 per cent. Someone with £10,000 in this account would earn £284 in interest over the course of a year.
If you’re a basic rate or higher rate taxpayer, that means you wouldn’t need to pay tax on that interest in a given year – unless of course you had money earning interest elsewhere which took you over the respective limits.
That said, there is little difference between the best non-Isa easy-access deals and best cash Isa easy-access deals at present.
By withdrawing funds from your cash Isa you would lose the tax free wrapper going forward, which may be a decision you ultimately regret if interest rates rise.
Expert view: Transferring an Isa
Derek Sprawling, savings director at Paragon Bank replies: Transferring an Isa can be done in a few easy steps, and you do not need to top up the fund to do so.
Firstly, you need to open an Isa account with a new provider. Secondly, let your new provider know that you wish to transfer an existing Isa.
Lastly, if your previous provider does not have electronic transfer capabilities, you will need to complete a transfer form and send that to your new provider.
Your new provider can then complete the transfer for you electronically or by post. This should take no more than 15 days for cash Isas and 30 days for stocks and shares Isas.
When Isas are transferred, they go with a transfer history form which details how much of the money is from the current year’s subscription and how much is from previous years.