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Santander A&L Flexible Cash ISA Still the Best Tax Free Savings Account on the Market

Personal_Finance / ISA's Apr 24, 2010 - 12:40 AM GMT

By: Nadeem_Walayat

Personal_Finance

30th April 2010 - NOTE - The Account to all intents and purposes has been withdraw, Do not waste your time visiting the branch to try and open an account as you will NOT be able to do so.

Best Financial Markets Analysis ArticleAll savers now have the opportunity to to deposit £5,100 into their this years Cash ISA tax free savings accounts as part of the increased annual ISA allowance of £10,200. I have been banging the drum for the Santander / A&L Cash ISA (No Affiliation with Santander) for several months as the best available account by far which at the time was paying a guaranteed rate of UK base interest rate PLUS 3% for 12 months i.e. currently paying 3.5%.


However, Santander have now CUT the rate for new customers from Base rate plus 3% to Base rate plus 2.7%. However when considering the market competition and my own interest rate expectations as I elaborate upon below, this account despite the 0.3% drop in the interest rate paid still presents savers with one of the best Cash ISA savings accounts for the reason that it includes a pledge to match the UK base interest rate PLUS 2.7%, i.e. includes a valuable hedge against future interest rate hikes as well as paying a very competitive rate.

Other Key Points

  • No Transfers in
  • Minimum Account opening £1
  • The 2.7% hedge is for 12 MONTHS, after which the rate drops to a crappy 0.5% so you WILL need to remember to TRANSFER your ISA after 12 months.
  • Instant access
  • Can now ONLY be opened at a Branch.
  • Interest paid annually.
  • Santander has gobbled up several UK banks over the past year, including Abbey, B&B, and A&L, so ensure your within the £50k FSCS guarantee limit across the banking group in case of a worse case scenario i.e. the bank or the country where it's based (Spain) goes bankrupt.

UK Interest Rate Forecast Expectations

The mainstream continues to view NO change in UK interest rates this year. Meanwhile market interest rates have already risen as the bond markets price in higher inflation and interest rates, with the bond market targeting a year end interest rate of between 4.5% and 5% for UK government bonds which will have severe implications for the financing of Britians huge and growing £1 trillion debt mountain (PSND) with total liabilities extending to more than £3.7 trillion.

My in depth analysis of 13th January (UK Interest Rate Forecast 2010 and 2011 ) concluded with the following forecast, that takes into account that despite the Bank of England wanting to keep interest rates at 0.5%, the market as a consequence of inflation and debt will force the Bank of England to start raising rates -

UK Interest Rates Forecast 2010-11: UK interest Rates to Start Rising From Mid 2010 and Continue into end of 2010 to Target 1.75% / 2%, Continue Higher into Mid 2011 to Target 3%.

Therefore IF the forecast interest rate rise does take place to 2% then the Santander account will be paying 4.7% by the end of the year.

UK Inflation Forecast 2010

My analysis since November has been warning of a spike in UK inflation as part of an anticipated inflation mega-trend (18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend ) that culminated in the forecast of 27th December 2009 (UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%). As the below graph shows, the inflation trend to date has been highly accurately mapped out now FOUR months in advance, with inflation for March of 3.4% having been precisely forecast in December 2009.

So despite UK inflation soaring to 4.4% on the RPI and to 3.4% on the CPI, even this 'good' account FAILS to beat inflation as a consequence of the artificial tax payer supported banking sector that is trending towards a crunch point where the only result can be for much higher interest rates, hence why the rate hedge is a useful component for this account.

As Santander have cut the rate to 2.7%, I expect them to continue to do so again over the coming months in advance of the first rate hike, so delaying action is both wasting valuable time in terms of loss of tax free interest on the current years account AND risking a further cut in the rate hedge.

The full implications of the unfolding Inflation Mega-Trend including forecasts trends for major markets for many years are contained within the NEW Inflation Mega-trend ebook that I am making available for FREE, which includes analysis and precise forecasts for:

  • Interest Rates
  • Economy
  • Inflation
  • Gold & Silver
  • Emerging Markets
  • Stock Markets
  • Stock Market Sectors and Stocks, including ETF's
  • Natural Gas
  • Agricultural Commodities
  • House Prices
  • Currencies
  • Crude Oil

The 109 page ebook is being made available for FREE, the only requirement for which is a valid email address.

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 2010-11 is £10,200, £5,100 for cash and £5,100 for shares ISA's or the whole £10,200 into a shares ISA.
  • 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 £51,00 limit refers to total deposited, and not maximum account balance. So if you deposit £5100, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £5100 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 .
  • Next years Cash ISA allowance will increase inline with inflation.

Source: http://www.marketoracle.co.uk/Article18897.html

By Nadeem Walayat

http://www.marketoracle.co.uk

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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Xenophon
24 Apr 10, 05:12
Santander A&L Flexible Cash ISA Still the Best Tax Free Savings Account on the Market

Santander A&L Flexible Cash ISA Still the Best Tax Free Savings Account on the Market ?

Yeah - wonderful but this is hardly major finance! Note the killer condition "no transfers in". This account would be a decent play if you could put £25-50K into it for a year but only £5100? - how much extra interest is likely with this account compared to a normal half decent ISA (e.g. NSandI Direct currently paying 2.5%) - at best £100 ? - this is not "hedging". Hedging is for people with a lot more money at stake! A bit of a trivial news item this one - this account is just one of the better of the myriad of gimmick micro-accounts out there. I'd much rather know where the UK stock markets will be in a years time!


Nadeem_Walayat
24 Apr 10, 05:23
ISA

Everyone has the same allowance of 5.1k for this tax year, and everyone can only invest in one ISA using this allowance.

Therefore in my opinion this IS the best ISA on the market at this point in time for the current years allowance, which unlike any other product provides an implicit hedge against interest rate rises by 3%!

When the base rate was at 5.5%, the best one could get was about 6.3%.


Alfred Warschauer
25 Apr 10, 01:48
Santander A&L Flexible Cash ISA Still the Best Tax Free Savings Account on the Market

Nadeem

Following on from your inflationary mega trend hypothesis, why would anyone want to bother with cash anyway? Especially if the banks are still going to need time to recapitalize, before they can be bothered to pass on a decent interest rate?

Presumably one would be better off buying into the market on the next dip, especially into companies that own or have access to oil, coal, gold etc (and not hotel chains, house builders, teen retailers etc).Or instead directly into the commodities themselves, as a way of preserving your wealth in a non cash form, while the Chinese bubble lasts?


Nadeem_Walayat
25 Apr 10, 02:13
ISA and portfolios

Hi

The stock market is very high risk, even for me I would nto go over 33% of ones total assets invested in stocks and commodities.

Cash ISA's represent one of the safest elements of a long-term portfolio. remember the interest is tax free so 3.2% equates to a basic rate tax payer recieving 3.8% and 40% at 4.5%.

I ALWAYS maximise my ISA allowances each year, which is especially important in a clime of rising taxes.

There are MANY benefits for holding ones cash in an ISA.

I.e. low earners on tax credits do NOT need to include ISA interest earnings in their annual reviews.

Infact ISAs over the past 10 years have represented a great retirement plan alternative to personal pensions that have in many cases disappointed by as much as 70%.


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