Isa providers had better get moving

There’s a major challenge out there for Isa providers: create an acceptable merged-Isa for us by 1 July. That’s the date the chancellor has given for the introduction of the Nisa.

We will all be allowed to put £15,000 a year into our Individual Savings Accounts, and for the first time, we will be able to do so without worrying about whether we hold our money in cash or in shares – according to the chancellor, we will now be able to transfer between the two at will.

We will also no longer have to pay 20% in tax on the interest we earn on cash held in non-cash Isas.

This is brilliant news for the likes of me (and I suspect an awful lot of Moneyweek readers). I hold a good amount of cash in my Isa (as I do in my Sipp), but as I move in and out of the market occasionally, I have never been able to hold that cash in a cash Isa.

Instead, I have had to leave it in my stocks and shares account and put up with being paid an interest rate on it of either nothing or almost nothing.

On the face of it, I won’t have to do that any more. Sadly, nothing is ever as simple as it should be. And in this case, the problem is that no providers have yet committed to adding cash Isa facilities onto their stocks and shares Isa facilities.

Hargreaves Lansdown, Halifax and Barclays “have no definite plans” to create any, says Mark Atherton in the Times. And Fidelity “hasn’t made a decision yet”.

The good news is that all these firms have a serious incentive to think about making definite plans sharpish. Why? Because if they are offering 0% or 0.01% on cash held in an Isa, but we can all transfer out to somewhere else (see here for Isa best buys) with not much bother, we probably will.

And that not only means they will lose out on any interest rate spread they take, but that they will lose control of the cash: once it is settled elsewhere, it may not come back.

This is the perfect opportunity for financial services providers to show us that they can create simple, straightforward consumer friendly products that keep us loyal to them. Let’s see how they do.

  • Impromptu

    Been wondering about this issue too.
    The idea of a merged ISA (a MISA?) would be attractive to some of us – but I suspect not enough of us to make it worthwhile. It’s more likely imo that the industry will maintain the distinction and leave it up to customers to chop and change. Perhaps even rely on inertia too.

  • Merryn

    Some platforms have – sort of – risen to the challenge. Higher rates on cash inside NISAs at a few – http://www.moneymarketing.co.uk/2011861.article?cmpid=pmalert_389237

  • Aaron

    Hi Merryn, i was just wondering what the latest news is with this? I just called Fidelity as I want to move a fair chunk of my stocks & shares ISA into a cash ISA. They said it isn’t possible, only to move it into the cash park facility that pays (almost) no interest. And even if I do that, I can’t then transfer that out to another provider as they don’t allow partial transfers – so if I wanted to do that I would have to transfer ALL of my holdings out (even the stocks & shares elements that I wish to remain invested in). All very complicated, and seems that the flexibility promised by George Osborne isn’t possible in practice…any tips?! Thanks!

Merryn

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