Ditch your Isa TODAY to make hundreds of pounds from extra interest

Savers can earn hundreds of pounds of extra interest by dumping their Isas fixed-income money early and switching to a better deal.

Even if you get fined, you could still be better off, as rates on tax-free savings accounts have skyrocketed. This follows the rise in the base interest rate from 0.1 percent in December last year to 2.25 percent now.

Retired chartered accountant Ian Cranston, 68, of Worcester, learned from a Money Mail article last week that he could switch fixed-income Isas.

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So he switched his two-year fixed deal from Aldermore Bank, paying 0.6 percent, to Shawbrook’s one-year fix, which offers a much higher 3.7 percent.

The 0.6 percent deal he closed in May 2021 will expire in 2023. He paid a penalty equal to 180 days’ interest to withdraw his money early. And now that he’s made his transfer easily online, he’s doing the same for his wife, Jenny.

Under the rules of the HM Revenue & Customs, you have the right to exchange or close an Isa whenever you want.

It is not always possible to withdraw from a fixed-income Isa, but this is not the same as transferring to a new provider.

Whether or not it’s worth switching depends on how long you have to run Isa and the costs you have to pay. But rising interest rates and the return of the big banks to the market could make it beneficial for many.

Anna Bowes, co-founder of Savings Champion, says, “You need to find out how much extra interest you can earn after paying the early payout penalty to see if it’s worth switching.”

According to data analyst Moneyfacts, the average interest rate on a one-year fixed contract at the beginning of the year was 0.59 pc. But this has since risen to 2.75 percent. Two-year deals have increased from 0.75 percent to 3 percent.

The transfer fee varies. Often on one-year accounts it’s 90 days of interest, double this on a two-year Isa and a whole year of interest for five-year deals.

The market has been rocked by the return of the big banks to the fray. Last week, Santander raised the one-year interest rate to 3.7 percent.

It offers 4 percent for 18 months and 4.2 percent for two years. A £50 e-voucher is offered if at least £10,000 is switched from another provider.

Halifax now has a one-year fixed interest rate of 3.4 percent, or 3.6 percent for two years. At the beginning of 2022, it paid just 0.2 percent flat for two years, and there was no one-year option.

Don’t forget your tax return

Deadline: Tax returns must be submitted before October 31st

Those planning to file a paper tax return must do so by October 31.

The paperwork must have arrived at HMRC by this date, so applicants should send in their forms within the next few days.

The tax authorities encourage taxpayers to plan ahead and give themselves enough time to meet the deadline. They then have until January 31 to pay the money owed.

HMRC no longer sends standard paper tax returns, but asks people to file online returns before January 31.

But anyone who has been determined not to be able to submit online can submit theirs by mail.

In April, the rate rose to 0.4 percent for new savers who signed up for two years. On £10,000 you pay only £40 interest in the first year.

If you leave early there will be a penalty of £19.72, equivalent to 180 days’ interest. But by switching to the two-year fixed rate, you will earn £360 in interest in the first year – £320 more than if you stayed put.

Once the fee is paid you will benefit from around £300.

If you switched to his one-year deal, you’d earn £340 in interest – £280 more than your previous deal after the penalty.

Even if you took the highest two-year fixed rate Isa from Close Brothers (1.1 percent) a year ago and chose today to switch it to the highest one-year fixed rate of 3.9 percent at Shawbrook, after paying £45 to stopping early would earn you £235 extra interest during the year.

Lloyds and Bank of Scotland offer 3.6 percent for two years. Barclays will pay 2.85 percent on its one-year Flexible Cash Isa, up 0.5 percent from two years earlier in 2022.

To exchange your money Isa, ask your newly chosen provider to arrange it. Do not do it yourself, otherwise you will miss out on the tax benefit.

The industry’s goal is for Isa cash transfers to be completed within seven business days.

sy.morris@dailymail.co.uk