ISAs [Matthew's Journal]

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From time to time, I remember to see how my ISA is doing. Almost invariably, I discover that what was (when I invested) the best-rate-providing-ISA is now a couple of % lower (which makes for a non-trivial difference annually, when one has order 10^3 GBP invested). I recently repeated this process, and so am moving my ISA. I went looking, and many of the "best" ISAs available don't want my money - they only want new investments. So they're really after people who will be drawn in by the headline rate and then leave their money in that ISA for evermore, without noticing that they're now getting a pretty bad deal.

I know banks are expected to be unethical, but this annoys me. It's hassle moving ISAs (some of which has to be done by old-fashioned pen and paper), and I dislike the way they're taking advantage of this fact.

ETA: This Beeb article seems somehow appropriate :)

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There are 16 comments on this entry. (Reply.)

HSBC have never been a bank to choose if you care about interest rates, but this year they did something unusual: raised their ISA rate to something close to competitive. But only for new money, no transfers in and it didn't even apply to existing ISA accounts with them, which were nearly 2.5% below the market leader. I even asked them if they would allow this over the phone (didn't have a clue) and in the branch (had specific instructions to say no) and they showed no interest in keeping my account with them even though I was pretty clear it was moving if they couldn't offer a fair deal.

I started at http://www.moneysupermarket.com/ and chopped their big list down to 1) transfers in allowed, 2) monthly interest, 3) online banking, 4) instant access. Which left around three, of which I ended up with Icesave.

More hassle than not moving, but signup was instant online, required 10 minutes of paperwork to be posted (proof of ID, DD and transfer-in authorisation) and basically just worked.

At which point I notice that their regular savings and bonds (eventually...) are even easier once you're already with them, and a hell of a lot better than HSBC, who have therefore just lost the interest on everything except rent.

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Yes, I've just moved to Icesave

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A couple of other gripes I noticed while shopping around:

1) I discounted Abbey without even considering their actual terms and rates because their website's CSS was stuffed (opaque page footer was absolute positioned above some fairly important body text which couldn't then be read), the body text contained a couple of sentences like "That didn't make sense - need to verify this before we publish it", and many of their internal links were invalid and clearly pointed to the internals of their staging server. Muppets.

2) The number one or two in terms of headline rate (well ahead of the main pack), seemed initially to have decent terms. But on closer inspection transfers in were only allowed if you transferred an equal amount into one of their long-term bonds with an interest rate around 3% - taxed. So on *average* they were nowhere near competitive. That was really dodgy.

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Doing this shopping around process was something that I've been meaning to do for a while, I may hang on the coat-tails of your effort!

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Obnoxiously HSBC informed me about this new ISA about a week after the start of the tax year - I had arranged to dump my year's allowance into my existing ISA on the first day of the tax year (which is generally the best plan if you can manage it) and was *greatly annoyed*.

I keep intending to move, but the faff is such a huge hurdle. Of course the benefit to moving the enormous sum currently in my ISA would probably be worth the faff, but faff :(

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I've found the move to icesave pretty hassle-free thus far...

</famous last words!>

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I have an account with ING where the remains of my once proud savings reside. The thing I liked about ING was that they always advertised "just one great rate". I got a flier in a magazine the other week with their new rate in large friendly letters. On checking online, I found this was an offer only open to new customers and I'm not getting anything like that.

I am tempted to move my few measly quid elsewhere just because of that.

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I finally closed my ING account last week. I'd used them as my main savings place for many years, but just as you said, their 'one great rate' is really a 'once great rate'. I now have my instant-access savings with Birmingham Midshires.

It's no secret that the banks rely on laziness. MoneySupermarket, MoneySavingExpert and ThisIsMoney are all good sites to track better rates.

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I've been pretty good in the past at moving my money to accounts with decent rates. I got a letter last week from Sainsbury's Bank saying I still have £13 in my account, which I don't seem to have done much with lately. I opened that account 11 years ago to put my expenses cheques in to catch some nice interest before my CC bill arrived. Now it's barely better than leaving it in a current account.

I think I may move to an ISA and keep the tiny amount of tax that HMRC steal off me each month.

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I feel your pain. Haven't done this ever but constantly feel guilty for not having done so. I am in the process of moving my IF savings from one account to their new account which they seem to be letting me open but it would have been even better if they had just transfered me across.

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So who do you have your cash ISA with right now? And is cash your only option (or have you ever looked into the stocks and shares ISA side of things)? What would make you switch to stocks and shares if anything?

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I've almost finished moving to icesave. I don't see myself considering stocks+shares ISAs as an option, unless I find myself wanting to save more than the cash ISA limit in a year (which at the moment seems unlikely). Observation of #chiark seems to suggest that more stocks+shares owned => more woe.

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It depends on your perspective; stocks and share are a long term investment, so if you stick money into them, you should be prepared to ignore them for the short term. If you worry about the day-to-day movement, then I can certainly see where the woe comes from.

Certainly my investment approach has this long term view. In particular, I know I wouldn’t be able to find the effort to partake in the annual get-the-best-rate shell game which seems to characterise the cash ISA market, so the cash ISA plan just isn't me.

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I note though that the FTSE 100 index is currently lower than it was a decade ago, so even over the medium term it doesn't seem like a great investment.

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Don't forget that a major part of investing is the dividends - these can be up to 8% of the amount invested, and don't show in the market pricing. One problem with Guaranteed Equity Bonds as peddled by banks (the sorts of things for which high-paying ISAs like Abbey's Super ISA are used as bait) is that they keep the dividends.

For a better structured product look at something like one of Premier's UK growth plans. For example PLE37: if the FTSE100 rises at all from the start date to any of the next 6 years you get 16% per annum (simple). If it doesn't but doesn't halve you get your money back, otherwise a corresponding percentage loss.

Also worth pointing out is that the FTSE100 is a relatively narrow field - lots of mining, oil and banking companies there. For the UK the FTSE All Share is a broader spread. If you're going to reduce the risk it's best to diversify your investments - some UK, some other developed markets, some emerging markets; some bonds, some shares, some cash; different sectors like commodities, property etc etc. You can get a reasonable spread for a few thousand invested.

(This is my opinion, not investment advice, see the savings and investment forum on moneysavingexpert.com for more)

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Dividends can be as much as 8%, but more typically would be around 3% (certainly over the last decade as a whole). Yields on shares are generally less than yields on other asset classes because of the anticipated capital growth (similarly rental yields are very low). If there is no capital growth (as there hasn't been for shares, in effect, for the last ten years), you would be better buying bonds or even putting the money in a savings account.

This isn't to say I disrecommend stock market investment. I suspect that in the very long term it will turn out to outperform other asset classes. I merely point out that that statement is not as clear as people sometimes make out.

There is a pretty good argument that the FTSE 100 (a) is not diversified and (b) does not reflect the UK market (and hence fails to match the prospective liabilities of UK investors). However, since the bulk of the FTSE all-share is the FTSE 100, that doesn't really help as an investment strategy. You could try investing in the FTSE mid-250, I suppose. In any case, I don't think that any of those indices show a significant gain in the last decade.

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Matthew's Journal

ISAs

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October