Topsy-turvy advice

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated: 19:00 EST, 18 September 2003

BANKS and building societies continue to make it difficult for savers with cash mini Isas to switch to better rates elsewhere.

Savers hold nearly £80 billion in cash mini Isas and Tessa only Isas. But although these tax-free deposit accounts are over four years old, there is still widespread confusion among banks and building societies staff as to how savers move their money.

Under government rules you can move your cash mini Isa or Tessa only Isa from one organisation to another and still earn tax-free interest on your money.

Money Mail reader Brenda Gordon from Annan, Dumfriesshire, tried to switch her Isa from Royal Bank of Scotland (RBS) to Yorkshire Building Society. But her local RBS branch told her, incorrectly, that she could withdraw her money and take a cheque to Yorkshire Building Society.

She says: 'I knew this was wrong and I could lose some of the tax-free benefit on the money.'

A spokesman from the bank says: 'The branch gave Mrs Gordon wrong information. We are taking it up as a staff training matter.' Savers are forced to switch because banks and building societies change the terms on their accounts or cut interest rates to an uncompetitive level.

Some institutions pay as little as 2.25%, well below the 3.75% or more available from top providers.

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It took her three visits to Alliance & Leicester and she had to wait three-and-a-half weeks to hear that the transfer was going through. 'I wanted to switch from Alliance & Leicester as it is introducing a £25 switching fee - and I could earn more interest with Nationwide. I filled in the form from Nationwide and had a covering letter to say I wanted to switch but Alliance & Leicester said it could not do it.' A spokesman from Alliance & Leicester says:'We apologise to Mrs Roles. This is not how the process should work. We are trying to ensure branch staff know what is involved.'

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Last month Alliance & Leicester announced a £25 charge if savers want to switch out of its Isa accounts. It has cut the rate to 3.35% on balances below £9,000. Savers have until October 17 to get out without paying this fee.

Where you go for the best rate depends on how much you have in your account and how banks and building societies treat cash mini Isa and Tessa only Isa money.

On top of your £3,000 cash mini Isa allowance for each tax year, you can also transfer capital from your Tessa once it has come to the end of its five-year term.

The government rules say: 'Savers may subscribe to a Tessa only Isa if they have a maturing Tessa. Alternatively, the capital from a maturing Tessa may be added to an existing cash Isa.'

But some banks and building societies do not allow you to add your Tessa money to your cash mini Isa and this can affect the rate you earn.

Lloyds TSB's maturing Tessa holders sticking with the bank go into its Tessa only Isa - you cannot add this money to any cash mini Isa you have with the bank.

So Lloyds TSB savers with £9,000 in a Tessa or £9,000 in a cash mini Isa earn the top rate of 4% on both accounts. But those who have £9,000 split between the two accounts earn a lower rate of interest. Other foibles among leading banks and building societies include:

• Abbey National and Safeway will not let you transfer your Tessa only Isa money into their cash mini Isas in the same tax year as you opened the Tessa only Isa.

• NatWest and RBS do not accept cash mini Isa transfers from other providers.

HOW TO MOVE YOUR ISA
• GIVE notice if necessary so you do not have to pay a penalty on switching and lose out on interest.

• GET an application or transfer form from your newly chosen provider.

• ASK it to arrange the transfer for you or take the form to your existing provider to arrange it.

• DO NOT take a cheque from one to another - you will lose at least some of your tax-free benefits.