Yahoo Finance How to make new easy-switch Isa rules work for you
Britain’s biggest stockbroker has launched a new way to save with cash Isas, tailored towards an Isa rule change announced in the Autumn Statement.
While most savers will have to wait until April 6 when the new rules officially kick in, those using Hargreaves Lansdown’s Active Savings platform can already spread their £20,000 Isa allowance across several cash Isas in the same tax year.
Usually, it’s only possible to save into one of each type of Isa, forcing savers to transfer their savings if they wish to move to a different account.
The firm’s new offering – which includes easy-access, limited-access and fixed-term products – is currently the only cash savings service where people can divide their allowance between multiple cash Isas from different providers.
Here, Telegraph Money explains what’s on offer, and how the cash Isa rule changes could impact you.
How can Hargreaves Lansdown offer this before April?
Chancellor Jeremy Hunt announced last autumn that savers will be able to spread their annual Isa allowance across multiple products of the same type in the new tax year, following years of frustration at stringent limitations.
But Hargreaves Lansdown – which is the overarching Isa manager, with multiple banks and products under its Active Savings platform – has made it possible for savers to do this straight away. As such, savers can split their allowance across multiple products ahead of April.
Hargreaves Lansdown says its rival savings platforms cannot offer this service before the new tax year.
What are the benefits of splitting your Isa savings?
Mark Hicks from Hargreaves Lansdown said cash Isas are “becoming increasingly important” as more savers are seeing their savings interest exceed the tax-free personal savings allowance.
If you are a higher-rate taxpayer with more than £9,700 in the current top easy-access savings account paying just over 5pc, you could be landed with a tax bill, as the interest you’ll earn could exceed £500 over the course of a year.
But as the interest earned in Isas is tax-free, savers won’t have any tax to pay on their money’s growth.
Mr Hicks says the new rules offer savers the chance to opt between putting money into an easy-access account and squirrel cash away for a fixed term.
“This flexibility allows savers the freedom to ‘bucket’ their Isa savings – use easy-access for some of your cash in the face of the cost-of-living crisis, and also have the ability to lock away the rest with a market leading rate,” he said.
For instance, a saver could put £5,000 in an easy-access OakNorth Bank account with 4.63pc interest, and £15,000 in a 16-month Coventry Building Society account offering a 4.55pc rate.
“By providing the full suite of cash Isa products from multiple banks, savers now have unrivalled choice when managing their cash Isas alongside their existing savings portfolio,” Mr Hicks said.
However, better rates can be found elsewhere if savers go directly to savings providers. For example, Zopa offers a leading easy-access cash Isa at 5.08pc interest, but with Hargreaves Lansdown an easy-access Zopa account offers 4.61pc.
A better cash Isa market
The new ability to split between cash Isas with Hargreaves Lansdown is hoped to improve what the firm describes as an “incredibly inefficient” market.
As traditionally you can only pay into one cash Isa each tax year, if you see a better deal elsewhere after you’ve already started saving, you have to make an Isa transfer – moving all the cash you’ve deposited during the current tax year to the new account.
You have to submit an Isa transfer request with the new provider to make this happen – and not all accounts permit transfers from other Isas.
If it is allowed, a transfer between cash Isas should only take up to 15 working days, but if the transfer involves a stocks and shares Isa it can take much longer.
By having the option to switch more easily, there is likely to be greater opportunity for savers to jump on more competitive deals, if they become available later in the tax year.
How do savings platforms work?
Savings platforms – such as Hargreaves Lansdown Active Savings – offer you access to a range of providers under one roof, where the main draw is that you don’t have to manually sign up every time you want to open a new account, as the platform already holds your details.
Each platform has a number of savings partners – banks and building societies that you may or may not have heard of. In general, the largest high street banks cannot be found on a savings platform; providers tend to be fairly small, or online-only.
You can then move your money freely between multiple accounts and providers, depending on which are on the platform at that time, and what they’re offering.
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