Tax Free Cash ISA Deadline, Best Savings Account Pays 3.5% Interest Rate
Personal_Finance / ISA's Mar 09, 2010 - 01:00 AMBy: Nadeem_Walayat
Just four weeks remain for savers to fully utilise at least the £3,600 cash element of their annual £7,200 ISA allowance. Even if you have already utilised this years allowance, savers need to ensure that they check the interest rates being paid on a regular basis, especially for those accounts that have matured as the banks and building societies are notorious for cutting rates on existing accounts and dumping matured accounts into pittance paying cash ISA accounts, paying as little as 0.1%. i.e. 1/30th the rate of a top current instant access account which on an ISA account balance of £3,600 means the difference between receiving £3.60 or £108 in interest per annum.
Interest rates will rise during 2010.
Contrary to the widespread consensus of rates on hold into 2011, interest rates will rise during the second half of 2009 as inflation fails to fall towards the Bank of England's 2% target.
- 13 Jan 2010 - UK Interest Rate Forecast 2010 and 2011
- 27 Dec 2009 - UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%
The market will force the Bank of England to raise rates which suggests savers should be careful not to be tempted into fixes of longer than 1 year, as it is highly probable that savings interest rates will be significantly higher by the end of 2010 despite the fact that the tax payer bailed out banks continue to rip off ISA savers i.e. similar accounts with the same provider without the ISA label tends to pay more than the ISA version therefore negating much of the aspects of the tax free savings element for basic rate tax payers.
Best Current Variable Rate ISA's
| Financial Institution | Interest Rate | Minimum £ | Comments |
| A&L / Santandar Flexible ISA | 3.5% | £1 | This account offers a guaranteed rate of 3% above the base rate for 1 year. So the account tracks the UK base rate with a 3% bonus for the first year only. An excellent 1 year hedge against future interest rate hikes. No Transfers in. |
| Barclays Golden ISA 2 | 3.1% | £1 | Includes a 1% bonus. Barclays mortgage holders can offset their mortgage balance against their ISA balance and hence boost their effective return on ISA savings. |
| First Direct | 2.75% | £1 | Offers a fixed rate of 2.75% until August 2011. Allows transfers in. |
| Newcastle BS | 2%-3% | £500 | 120 day notice - Pays 2%, or 3% on whether funds are held until anniversary |
| Standard life | 2.65% | £1 | Taken over by Barclays. Postal / Online, allows transfers in. |
Best Current Fixed Rate ISA's (1 Year Max)
| Financial Institution | Interest Rate | Fixed Period | Minimum £ | Comments |
| Aldermore | 2.9% | 1 Year | £3,600 | Previously Ruffler Bank, accepts transfers in. |
| Northern Rock | 2.75% | 15/11/11 | £500 | Fixed until March 2011. Tax Payer owned Bank - On maturity converted to a 30 day notice ISA paying a pittance. |
The clear winner is the A&L / Santandar 3.5% Tracker Cash ISA that tracks the Base UK Interest rate +3%. The forecast for 2010 is for UK interest rates to rise to between 1.5% and 2%, which converts into a rate of 4.5% to 5%. This ISA beats any of the fixed rate ISA's on the market, I would not be surprised if this ISA is soon withdrawn. Though remember that the 3% tracking is only for 1 year after which the rate drops to a pittance of just 0.5%, so remember to switch on anniversary.
Self Select Shares ISA's
The stock market bottomed in March 2009 with recent analysis concluding that the bull market in stocks and commodities could continue for many more years, which opens the doors towards utilisation of the shares part of the annual ISA allowance.
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Self select ISA's are part of the UK annual tax free ISA allowance of £7,100 which comprises two components, the Cash ISA and the Shares ISA, which for the current tax year for most people is £3,600 in each part, rising to £5,100 each from 6th April 2010 (total £10,200).
Self select ISA's as the name suggests allow investors to select their own stocks and bonds i.e. they are basically ordinary share dealing accounts encased in an ISA wrapper.
All capital and income gains accrued within a self select ISA are tax free (dividends are still taxed at 10% at source).
For those that want to invest more than the component part i.e. £3,600 then if you do not open a cash ISA you can utilise the full annual allowance of £7,200 towards a shares self select ISA.
Virtually all self select ISA providers charge a small annual fee, usually a fixed amount in the range of £30 - £50 on top of dealing costs.
Summary of ISA Rules & Benefits
- The ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 3% cash ISA for standard rate tax payers is 3.6%. For higher rate tax payers it is 4.2%.
- The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
- The Allowance for 2009-10 is £7,200, £3600 for cash and £3,600 for shares ISA's or £7,200 in a shares ISA. For over 50's the allowance as of 1st October is £10,200 at £5,100 for cash and shares. The new allowance will apply for all savers from 6th April 2010.
- You can only open ONE New cash ISA per tax year, and you can add new monies to One Cash ISA per tax year (see transfers). Similarly you can open only one new Shares ISA per tax year.
- You do not have to open a Cash ISA with your existing provider, i.e. you can open an account at different providers every year.
- Most providers allow for transfers in. And ALL should allow you to transfer out.
- Once you withdraw from a Cash ISA you cannot then then re-deposit into. The £3600 limit refers to total deposited, and not maximum account balance. So if you deposit £3600, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £3600 deposit limit.
- To maximize your tax free interest, it is best to open your account at the start of the tax year.
- The Financial Services Compensation Scheme (FSCS) guarantees the first £50,000 per person, per institution. Those with sizable savings that total more than £50,000 should ensure that their institutions really are separate, especially given the banking crisis forced mergers.
- There is the facility to transfer Cash ISA monies into Shares ISA's but NOT from Shares ISA's to Cash ISA's .
Source: http://www.marketoracle.co.uk/Article17758.html
By Nadeem Walayat
Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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Comments
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jeff
30 Apr 10, 06:42 |
Compare ISAs
hi all, i like your article, thanks for view this article. ******************************* Jeff |
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