If you are unhappy with the rate that you are currently receiving from your cash ISA because the bonus period has ended, or if your equity ISA is underperforming, you don’t have to endure it. The good news is that you can switch your current tax year ISA, or, indeed, ISAs from previous tax years from one manager to another.

Cash ISA rates can change frequently and what one provider offered you a couple of months ago may be paltry compared to some of the rates on offer now. Some cash ISA rates now stand at over five per cent, so if you are locked into a fixed-rate ISA that you invested in two years ago, it may pay to see if you can get more. You should look at best-buy tables for up-to-date information on the latest and best rates.

‘Fixed-rate cash ISAs can be reasonable, but if the base rate goes up you could get more interest,’ says Terry Cutworth, senior savings researcher at personal finance website Moneyfacts. These best ISA rates for cash investments are often accompanied by introductory bonuses. While some bonuses represent a good deal, there are others that won’t last for the term in which you invest with the provider. If you forget to switch after the bonus period runs out you could incur heavy penalties.

Not all cash ISA providers allow you to transfer money over to them. National Savings & Investments (NS&I) for instance does not accept transfers, so you have to look at others that offer good rates and allow you to transfer. ‘National Counties Building Society ISA has a top rate of 6.26 per cent, while others like National Savings & Investments, Kent Reliance Building Society and Egg are offering rates of 6.05 per cent,’ advises Cutworth.

Greater flexibility online
If you have your cash or equity ISA set up online, it is usually a more straightforward process to transfer funds than doing it manually. ‘Once you have opened an account, you can simply transfer as many ISAs or PEPs as you have with different providers. Users just follow the simple online instructions and we take care of the rest,’ says Rebecca O’Keefe, head of fund management at Interactive Investor.

Transferring an ISA manually is by no means an easy task as there is a lot of paperwork, but sometimes this cannot be avoided. ‘Cash ISAs are a different animal as you can’t get them on a platform and you have to transfer cash yourself from one to the other,’ says Mark Dampier, head of research at Hargreaves Lansdown.

But transferring can easily be done if you are organised. In fact, these days most new providers will do most of the legwork for you. Provided you have all the correct paperwork in order, the process should take around a month, but in the majority of cases it can take less time than that.

To ensure that the process goes smoothly, Neville Richardson, group chief executive of Britannia Building Society, advises bringing as much information as you can to your new provider. ‘You will probably have to fill out a couple of forms,’ he says. ‘Under government rules, the account has to be transferred within 30 days by the providers once the application is completed.’

When it comes to equity ISAs, bear in mind that, should you go ahead with a transfer, your money will be out of the market for a period, as the holdings are disposed of and the money reinvested with the new provider. So if the underlying investments rise while the transfer takes place, you will lose that element of return. However, this can also work to your advantage. If the underlying investments dip during the transfer period, you will not have lost out. With cash ISAs, though, there are some providers that will pay you interest from the time your money leaves the old ISA provider so that you won’t be short-changed.

However, it is vitally important that you don’t withdraw any of your ISA savings to move funds. If you withdraw any money, you will instantly lose the tax benefits on the money withdrawn.

The effects of the new ISA rules
Before you can transfer your ISA, you must ensure that you are aware of and adhere to the rules that apply in this tax year and the next. Under the old ISA rules, cash ISAs and stocks and shares ISAs must always remain in the same component. For instance, you can transfer from one equity ISA to another stocks and shares ISA, but you cannot transfer a cash ISA to an ISA investing in equities.

Under the new ISA rules, which apply from 6 April 2008, ISAs will no longer be divided into a mini and maxi component. Investors will have the added benefit of transferring any cash ISAs into a stocks and shares ISA for the first time. Investors have the choice of transferring all, or simply a portion, of their savings to the new equity or cash ISA.

A substantial number of investors are sure to take advantage of this new rule now that around 17 million investors hold ISAs, with about £220 billion invested in them, according to the Treasury. There is one snag though: once you have transferred from a cash to a shares ISA, you won’t be able to revert the money back to a cash ISA.

Read the small print
If you plan on taking advantage of the new rules, or simply want to switch because you are unhappy with the return from your current funds or cash accounts, you should read the terms and conditions before you switch. According to Abbey National, around one in 11 companies has restrictive transfer-out conditions. It is disappointing that many of the leading-rate cash ISAs do not allow transfers,’ says Reza Attar-Zadeh, head of savings and investments at Abbey. ‘With the average ISA transfer balance at £12,000, savers need to look carefully at the transfer conditions on things like cash mini ISAs.’
She adds, ‘Even stranger is the myriad of conditions for transferring out. Savers could end up paying to transfer out their money, or their investments could be subject to time locks. Such restrictive conditions can be expensive and cause delays.’

Other penalties and requirements for transferring your money can include a requirement to give up to 30 days’ notice, an interest penalty on the amount transferred, an administration fee for the amount transferred or a fixed charge on transfers.

‘When you decide on transferring, you must check what the terms and conditions are and whether there are any penalties, especially on the fixed-rate cash ISAs,’ says Cutworth. ‘Some providers can impose a heavy penalty if you transfer out, sometimes up to 180 days of lost interest. Halifax, for example, stipulates that you have to give it 30 days’ notice and charges you 180 days’ loss of interest if you want to transfer.’

Look before you leap
If your equity ISA has been performing dismally – and the table on page 30 indicates just how great the differential can be between the best- and the worst-performing funds in any given sector over different periods of time – then it probably is time to switch. But before you jump, you should find out what your potential new provider has to offer.

‘People select an ISA based on the performance of the fund, but it can happen that the fund manager moves somewhere else and the performance wanes,’ explains Sheriar Bradbury, managing director of financial adviser Bradbury Hamilton. ‘You must find out how much it costs to switch but also whether there is variety offered by the other provider in the event that you want to switch again,’ he adds.

Poor performance and low rates are good reasons to switch your ISA, but if you have a number of accounts spread around a number of different providers, it may benefit you to consolidate your investments under one roof, for example by using the services provided by a fund supermarket.

Interactive Investor’s Rebecca O’Keefe explains that ‘Rather than receiving different statements and being subject to different charging structures, investors can find daily valuations and online statements from our portfolio services. There is no limit to how much you can transfer in and there are no fees,’ says O’Keefe.

Also, once a fund is switched to a fund supermarket platform it can be easier to maintain. ‘Managing your funds in one place gives you greater access to your assets, so keeping track of them is quicker and easier,’ says O’Keefe. ‘Users can also get up-to-the-minute valuations of funds, switch into new sectors and funds whenever they choose, change their fund investments without losing tax benefits and reduce the paperwork involved.’

Most fund supermarket platforms have to be accessed via a financial adviser, but this should not put investors off utilising a very flexible investment tool. Ashley Clark, director of Needanadviser.com, says, ‘I am a great believer in the fund platform option as I am not a fan of people transferring from one ISA to another, because you run the risk of incurring a new set of charges. A competitively charged platform opens up a huge range of funds so that you or your adviser can invest accordingly.’

So, before you transfer your ISA, there is a lot to consider. Rates or bonuses may be good, but you should ask yourself whether you are, in fact, moving to greener pastures. The next home for your investments should ultimately be a place from where you can easily jump again should you feel unsatisfied with the performance or rate on offer.