More great news about your ISA

Steps taken by the market-leading ISA provider will be welcomed by savers who want a top tax-free return.

How do you guarantee you’ll always get the best return on your savings? Easy - you shop around for the best deal then, when the rate drops, you move your cash to the new market-leader. This principle of comparing the market before diving in is what lovemoney.com is all about.

But when it comes to cash ISAs, switching to a better deal isn’t as straightforward as it sounds because it means you’ll be forced to brave the onerous ISA transfer process. Unfortunately, you can’t simply draw money out of one ISA and re-deposit into a more competitive alternative. If you do, you’ll instantly lose the valuable tax break. Savers have no choice but to give up control, and rely on ISA providers to carry out the transfer on their behalf.

Super complaint

ISA companies have already been in trouble for dragging their heels over transfers. In fact, the situation had got so bad fair deal campaigner, Consumer Finance, was compelled to issue a super complaint to the Office of Fair Trading (OFT) back in March. You can read more about it in The billion pound ISA rip off.

Although Consumer Finance had a number of issues with the state of the cash ISA market, the length of time taken to transfer money from one ISA to another became a primary concern. Often cash would mysteriously disappear for weeks on end before turning up at its chosen destination. And throughout the much of the transfer period, many customers didn’t earn a penny in interest.  

The OFT’s investigation found the average ISA transfer took 26 days to complete, with a quarter taking longer than a month. In July, new guidelines were issued which cut the maximum length of time transfers should take from 23 working days down to 15. This ruling is due to come into force on 31 December 2010.

But it still means ISA providers will be allowed a period of three weeks to carry out a transfer. There’s also no obligation to pay interest to savers during this timeframe, although it must be paid after this period expires even if the transfer hasn’t reached completion. That said, the OFT recommends interest should be payable throughout the transfer process, but ISA providers aren't obligated to comply.

You could argue this is a step in the right direction if you’re feeling generous, but bear in mind the new timescale is only guidance rather than law and is actually voluntary. ISA providers may feel under pressure to treat customers fairly to protect their reputations, but they aren’t legally obliged to do so.

ISA promise

Putting all that aside, why should savers lose any interest if they want to switch to a more competitive account? Luckily they don’t have to anymore with a new pledge from market-leading ISA provider, Halifax.

The company has just launched a ‘cash ISA promise’ which means when an ISA is transferred to them, interest will be paid from day one of receiving your transfer application form without needing to wait for funds to arrive from the original ISA provider first.

Halifax is one of only a handful of providers to offer such fair transfer terms which go above and beyond the OFT’s guidance. And it’s about time too. After all, they estimate around £24 million in interest is lost every year while ISA money is left in mid-transfer limbo.

The cash ISA promise also ensures Halifax customers will benefit from greater transparency with interest rates clearly printed on ISA statements, online and in Halifax branches from July 2011. What’s more, savers will benefit from advance notification when introductory rewards and fixed rates are due to end.

A winning combination

Not only is Halifax offering customers a much fairer deal, but if you’re looking for easy access to your ISA savings, they also provide a market-leading cash ISA. The Halifax ISA Direct Reward pays a generous tax-free rate of 2.80%. To earn an equivalent return in a taxable savings account, basic rate taxpayers would need a rate of 3.5%, while higher rate taxpayers need 4.67% and additional rate taxpayers need 5.6%.

Even better if you’re already an existing Halifax bank customer and you pay in at least £1,000 into your current account each month, or you hold an Ultimate Reward Current Account, you’ll enjoy an even higher rate of 3%.

You’ll only need £1 to open the Halifax ISA Direct Reward and you’ll get unlimited penalty-free withdrawals whenever you need them.

Of course, Halifax also accepts transfers, including old ISAs from previous tax years enabling you to earn this top rate on all your tax-free savings. What’s more, with the cash ISA promise you’ll have greater confident in switching your ISA to the Halifax ISA Direct Reward, and you’ll know that interest will begin to be earned from the moment your transfer application arrives.

Compare cash ISAs at lovemoney.com

More: Earn 5.15% on easy access savings | Earn 4.25% on your savings tax-free!