If you're losing interest in your cash Isa, do a transfer deal

If you're losing interest in your cash Isa, do a transfer deal

Some of the biggest names in UK finance are now responsible for the nation's worst individual savings accounts. Nationwide, Abbey and Barclays are among the banks and building societies that have chopped interest rates on Isas by the most over the past year.

But there is no reason why you should accept paltry rates - you can transfer your low-paying cash Isa to a more attractive account.

Want to know how? We answer your questions:

Should I transfer my Isa? Yes - if your cash is in any of the Isas listed in the table below, or if it is paying below the best rates you can find right now, which are around 3%.

Many savers fail to check the interest rate on their cash Isa, and may be astonished to find just how much it has fallen over the past nine months.

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The biggest cuts are at Nationwide, where rates on its Instant Access Isa have fallen from 5.05% to just 1%. But although Nationwide has made the deepest cut, it does not take the wooden spoon when it comes to the worst rate on offer.

The joint winners of that dubious award are Abbey and Halifax, which both have Isas paying interest of just 0.1%.

Who do I transfer the money to? The "best-buy" easy-access cash Isa at present is NatWest's e-ISA, which pays 3.25% (£3.51% on balances over £10,000). You have to bank with NatWest or open a separate e-savings account with them, but £1 will do.

RBS launched its Cash Isa Plus on Wednesday paying up to 3.51% and it is open to any newcomers - but sadly it won't accept transfers from existing Isa accounts.

Egg is paying 3.05% on its no-notice cash Isa, minimum deposit £1, as is Earl Shilton building society on £10 or more in its 90-day notice cash Isa.

You'll get a slightly better rates from "best buy" fixed-rate cash Isas if you are prepared to leave your money untouched for two, three or four years.

The Halifax's four-year bond Fixed Rate Isa Saver is paying 4% on a minimum deposit of £500 (the rate drops to 3.1% if you fix it for just one year) and Dunfermline building society is paying 3.75% on £100-plus in its fixed rate account with a term ending 31 October 2011.

How do I make the switch? You are perfectly free to transfer money held in cash Isas taken out in earlier years without losing the tax-free status. But be careful how you do it. Don't close your existing Isa and then move the money, or you will lose the tax break.

Instead, ask your existing provider for a cash Isa transfer form and make sure they treat it as a transfer, not an account closure. You will need to give details of where you wish to transfer your money and any required ID proofs to the new provider but, otherwise, your existing and new providers will do the actual legwork of making the transfer.

The process usually takes about a week to complete, during which time your money will still be earning interest in your original account. But bear in mind that switching accounts can take longer - up to 30 days - towards the end of the Isa tax year, particularly if you are switching to a popular provider.

Some 85% of cash Isas accept transfers of funds from other accounts. Among the best-buys mentioned above, only the Egg Cash Isa does not.

Is it worth the hassle? If you are earning much above 2% on your Isa, and the best rate available is 3.1%, the thought of spending a Sunday afternoon filling in forms for just a little extra interest may sound tedious. But some people have Isas going back over 10 years, and the sums of money may now be quite large.

If it's all sitting in the likes of a 1% Nationwide Isa, shifting the money will still make sense.

When do I have to do it by? The "use it or lose it" deadline for investing this year's Isa allowance is only seven weeks away. So if you want to put up to £3,600 into a deposit account and avoid tax, you should get on to it sooner than later.

Remind me of the Isa rules An Isa can be either cash - a deposit account - or an investment in stocks and shares. In a cash Isa, you pay no tax on the interest you receive - normally, higher-rate taxpayers pay 40% on any savings interest, while those in the basic-rate band pay tax at 20%. The old distinctions between "maxi' and "mini" Isas no longer exist - they were scrapped in April 2008. Instead, under new simplified rules, you can open one cash Isa and one stocks and shares Isa each tax year.

You can put up to £3,600 into a cash Isa with one provider and put the remainder of your £7,200 allowance into a stocks and shares Isa from another provider.

Alternatively, you can open a single stocks and shares Isa and invest the full £7,200 in that. Various non-cash assets can be held in a stocks and shares Isa including unit trusts, company shares, bonds, investment-type life insurance and investment trusts.

Can I put money into Isas bit by bit? Yes. But once you've invested up to your annual limit you can't pay more in, even if you've made a withdrawal. If, say, you put the maximum £3,600 into a cash Isa, and then take out £1,000 after a couple of months, you can't put that £1,000 back into your Isa in the same tax year.

Who can hold Isas? You have to be over 18 (over 16 for cash Isas). You can only hold an Isa in your name, not jointly with another person.

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