13:00 20 February 2013
Have you checked your ISA rate recently? With the Bank of England base rate so low and savings 'bonuses' which boost returns typically only lasting for 12 months, the risk of your hard-earned cash languishing on paltry rates is high. So don't delay in switching your existing balance to the best-paying ISA.
You can slot away up to £5,640 into a cash ISA before the end of the tax year on April 5, so if you have all or part of this allowance sitting in a low-paying account it's time to seek out the best deal before the 2013/2014 tax year, when you can stash away a further £5,760 in cash.
Transferring your ISA shouldn't be any trouble, as there are industry rules to make the process smooth and simple.
Follow our five-step guide and you won't go wrong:
1. Start from solid ground
The first vital rule is to avoid just withdrawing your money to deposit it into another ISA. Instead, the transfer is processed by the two providers involved, as this way the tax-free status of the account is kept intact. You must request a transfer form from your new provider and it will carry out the process for you.
The ISA provider you are transferring to will also have to accept 'transfers in' from existing ISA balances - some do, some don't.
2. Shop around for the best ISA and best rate
There are plenty of ISA deals available that accept transfers in.
Of these, you will need to decide whether you want to opt for a variable rate ISA or a fixed rate. A fixed rate will require you to lock your money up for a period of time, whereas a variable rate doesn't - but then you risk the rate falling.
•Fixed rate ISAs
Some of the most competitive ISAs are fixed rate accounts. If you only want to tie up your savings for a year, then top of the tables is NatWest which offers a fixed rate ISA paying 2.05% tax-free with a minimum investment of £1. Halifax's fixed-rate ISA also pays 2.05% tax-free with a minimum investment of £500.
Alternatively, if you are happy to lock up your savings for two years, Halifax pays a market leading 2.50% tax-free with a minimum investment of £500.
Over three years, Halifax is market leader again, paying a fixed 2.60% on a minimum deposit of £500. If you have £50,000 to transfer into an ISA (and don't mind operating it by post alone), BM Savings has a three-year fixed rate deal too which pays a higher 2.80% tax-free. You can read more about this in Melanie Wright's article.
Halifax is looking good so far this year for ISA rates but a further perk is that if you hold £5,000 or more in a Halifax (or Bank of Scotland) account for any full calendar month, you will also be entered into the Halifax Savers Prize Draw, which puts you in line for one of three top prizes of £100,000 every month.
You will have to register to enter though so make sure you do as you have everything to gain and nothing to lose.
•Variable rate ISAs
If you're after a variable rate ISA, as you'd prefer to avoid locking into a fixed rate, there is a range of deals on offer.
Nationwide Building Society's Web ISA Issue 2 pays 2.25%, but this includes a bonus of 1.75% until August 31, 2013 and requires a minimum deposit of £10,000. New customers will also have to open a card account to apply for this ISA.
Nationwide also offers an ISA paying 2.00% with a bonus of 1.50% for the same period if you only have a deposit of £1,000.
Bear in mind that, as these accounts include bonus rates, you will need to move your money again once they disappear to ensure your savings are earning as much interest as possible.
All the above accounts accept transfers in.
•Stocks and shares ISAs
If you are prepared to ride the stock market highs and lows, and take some risk with your savings, then you could transfer to a stocks and shares ISA.
You can move from a cash account to stocks and shares but not the other way round. However, don't just pick any old equity ISA to invest in, as you should seek independent financial advice to ensure you pick the funds and sectors that suit your needs and risk profile.
3. Contact the provider
Once you've chosen the account you want to transfer to, contact the provider. It will give you a transfer form to complete, alongside, if needed, an application form for the new account. Have details of your old ISA to hand as you will need these too.
4. Sit back and wait for the process to complete
Once you've completed the forms, the new provider should process your paperwork and contact your current ISA provider to sort out the transfer. You may be asked for additional information, such as identification, along the way.
The process should take around 15 days and, under rules set down by the Office of Fair Trading, your new provider will now have to start paying interest as soon as your old provider stops.
Some providers, such as Halifax and Nationwide start paying interest as soon as they receive the application.
5. Your new account is open!
Once your new account is open you can relax in the knowledge that, while interest rates are low, you have done all you can to get the best returns on your cash.
And don't forget to then top up with your new allowance of £5,760 from the start of the new tax year on April 6 and make maximum use of those tax-free returns too.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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