Ditch these out-of-date ISAs

Bonus interest rates are falling off ISAs every day. So if you have one of these accounts, it may be time to ditch and switch...

The annual cash ISA bonus plunge is now in full swing!

Yes, it’s the time of the year when many savvy savers who took out ISAs last Spring will begin to see their interest drop as 12 month bonus rates fall off accounts left, right and centre.

Stats from Defaqto show that easy access cash ISAs launched today are paying 85% more interest on average than accounts launched before 2010. And looking at the market-leading accounts around in Spring last year, the same seems to be true for 2010’s ISA season crop.

So which accounts have seen their interest rates slashed recently?

With ISA season in full swing. John Fitzsimons looks at what you should consider before going for your first account

Rates are dropping like flies!

As we’ve previously reported, most market leading ISAs come packaged up with a bonus interest rate that drops away after a certain length of time (usually 12 months). This usually leaves you with the provider’s paltry basic interest rate – often somewhere in the region of 0.50%.

And as many people will take out an ISA around the end of one tax-year and beginning of a new one, March and April is the time when interest rates start to drop like flies.

So with the help of moneyfacts.co.uk, I’ve put together a list of high interest accounts which were packaged up with bonus rates and available in Spring last year.

If you invested in any of these ISAs early in 2010 then it’s very likely that you’ll need to ditch and switch now or in the next month or so.

Account	Initial rate	Bonus	Post-bonus rate
Santander Flexible Loyalty ISA	3.50% (3% above base rate)	3% for 12 months	0.50%
Santander Flexible ISA Issue 2	3.20% (2.70% above base rate)	2.70% for 12 months	0.50%
Barclays Golden ISA Issue 2	3.06%	1% for 12 months	2.06%
Newcastle BS Reward Saver ISA	3%	1% for 12 months	2%
Market Harborough BS Brighter ISA	3%	0.75% for 12 months	2.25%
Nationwide e-ISA	2.75%	1% until 31/06/2011	1.75% from 31/06/2011
Santander Direct ISA	2.75%	2.25% for 12 months	0.50%
Birmingham Midshires ISA Extra	2.70%	1% for 15 months	1.60%
Cheltenham and Gloucester Cash ISA	2.70%	1.70% for 12 months	1%
M&S Flexi Cash ISA	2.65%	1.25% for 18 months	1.40%
ING Direct Cash ISA	2.50%	1.47% for 12 months	1.53%
RBS Instant Cash ISA	1.05% - 2.40%	0.50% for 12 months	0.55% - 2%

Source: moneyfacts.co.uk and lovemoney.com

Now obviously if your bonus rate hasn’t come to an end yet you won’t need to switch right away. But it’s definitely worth staying on the ball so that when your rate is slashed you can find a higher interest account straight away.

The same goes if you took out a fixed term ISA in the Spring of one year as that set rate will also be dropping away and leaving you with a paltry basic return.

But there is a simple way to combat these plunging interest rates...

5 top easy access cash ISAs

If the bonus has recently been stripped away from your ISA, then your best option is to simply transfer your funds to another, higher interest account.

Here’s five of the top easy-access ISAs around at the moment:

Account	Interest rate (AER)	Minimum deposit	Access	Important info.
Halifax ISA Direct Reward	3.20%	£1	Online, phone	Rate valid for 12 months. 3% rate if you’re not a Halifax current account holder
Nationwide e-ISA	3.10%	£1	Online	Rate includes 1.75% bonus for 12 months.
Newcastle BS Super ISA	3.00%	£1	Online, phone, branch, post	Withdrawals subject for 60 days’ loss of interest. Transfers to Newcastle Maturity Account on 19/09/12.
BM Savings ISA Extra Issue 2	2.90%	£1	Post	Rate includes 1.20% bonus for 15 months
West Brom WeBSave ISA	2.85%	£1,000	Online	Rate includes 1% bonus for 12 months

You can transfer as much as you want across to a new account and it won’t eat away at your annual cash ISA allowance (currently £5,340 for 2011/12). But you can only open one new cash ISA every tax year – so if you want to contribute any additional funds from your own pocket, you’ll have to use the same account.

And again, many of these ISAs include some sort of bonus rate – so you will need to switch again when this drops away in 2012.

5 top fixed cash ISAs

If you don’t need to get at your cash for a while, you’ll almost certainly get a better interest rate if you lock away your investment in a fixed term cash ISA.

Here are five of the best fixed cash ISAs that are around at the moment:

Account	Interest rate (AER)	Term	Minimum deposit	Access
Bank of Cyprus Cash ISA Bond	3.30%	1 year	£1	Online, phone, branch, post
Santander 2 year Fixed Rate ISA	3.70%	2 year	£500	Post
Principality BS 3 Year Fixed ISA	4.22%	3 year	£500	Branch, post (once open)
Cheshire BS 4 Year Fixed ISA	4.40%	4 year	£100	Branch, post
BM Savings 5 Year Fixed Rate ISA	5%	5 year	£500	Post

But remember, you need to be absolutely certain that you will not need to get at your cash if you go for a fixed term ISA – as you won’t be able to withdraw it without facing big penalties. And what’s more, if interest rates rise (as many are predicting) and you’ve locked your cash away in a fixed ISA – you won’t be able to change accounts and will be stuck with what could well be a very uncompetitive rate.

And finally, when you are making the transfer, whatever you do don’t withdraw the money from your old account. Doing this will see it lose its tax-free wrapper and you won’t be able to shift it into your new ISA without losing part of your allowance. Instead, ask your new ISA provider for a form to transfer over the balance directly.

More: Compare cash ISAs with lovemoney.com | 16 top cash ISAs for transfers | The best cash ISAs for the new tax year