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Best Cash ISA Alternative to Santander Flexible ISA

Personal_Finance / ISA's May 01, 2010 - 02:46 AM GMT

By: Nadeem_Walayat

Personal_Finance

Best Financial Markets Analysis ArticleSantander market beating Cash ISA that pays 2.7% above the base rate for a fixed 12 months is soon to become a publicity stunt for the ISA league tables as savers will be required to jump through hoops to open an account from May 4th.


Savers may think that they have 3 days left to open an account, unfortunately that is not so as first Santander withdrew the facility to apply online leaving only branch applications as the route towards opening an account. However savers trying to open an account at Santander branches may find their progress blocked -

a. Accounts cannot be opened on the day of visit.

b. Staff refuse to make an appointment for potential customers to return the following day.

One could interpret these as delaying tactics ahead of the May 4th implementation of the requirement for potential savers to move their current accounts to Santander before they can open the Flexible Cash ISA account.

Alternative Current Cash ISA's

The ISA savings strategy remains to not to lock into a rates of more than 1 year, therefore this analysis is focused on instant access and 1 year fixed rate accounts. With RPI Inflation at 4.4% and CPI Inflation at 3.4%, even the best cash ISA's FAIL to match inflation which is a continuing sign of the double price tax payers are paying for bailing out the bankrupt banks. It should also be noted that rates have DROPPED since the start of the year, it really is a case of the banks ripping off savers, a normal market can only return when the artificial support for the banking sector is withdrawn by Britain's culpable Central Bank that continues to funnel tax payer cash onto the increasingly bloated banks balance sheets that are paying out billions in bonuses.

Nevertheless the following represents the best of a bad lot -

Best Instant Access ISA's

Financial Institution Interest Rate Minimum £ Comments
Barclays Golden ISA 2 3.1% £1 Includes a 1% bonus for 12 months. Can be opened online. Barclays mortgage holders can offset their mortgage balance against their ISA balance and hence boost their effective return on ISA savings. Barclays customer support in the past has proved to be near useless. Does not allow transfers in.
Nationwide Champion ISA 2.8% £1,000 2.8% Upto 30th June 2011 (1.35% bonus) Allows 1 withdrawal without penalty, accepts transfers in. So savers will need to move after 30th June 2011.
First Direct 2.65% £1 Offers a fixed rate of 2.65% until October 2011. Allows transfers in so you could consolidate your many ISA accounts as they mature. Open online.
Newcastle BS 2.75% £500 120 day notice - Pays 1.75%, or 2.75% on whether funds are held until anniversary. Cannot be opened online.
Halifax Reward 2.60% £1000 2.1% is conditional on not making more than 4 withdrawals a year, Instant access, Transfer in as many ISA's as you want i.e. a good consolidator, can be opened online. After 1 year rate drops to 0.5%

 

Best Current Fixed Rate ISA's (1 Year)

Financial Institution Interest Rate Fixed Period Minimum £ Comments
Coventry BS 3.25% 1 Year £5,100 NO Transfers, Can apply online, Fixed until 31st May 2011.
Kent Reliance 3% 1 Year £100 No Transfers in, Open by Post or Branch. Fixed until 5th April 2011.

 

Which ISA ?

Depends if you have a number of existing fixed rate ISA's maturing during the year i.e. therefore a consolidator may be the best option than a 1 year fix. When compared against the Santander ISA, the Coventry BS 1 year fix offers a an acceptable alternative.

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/Article19096.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

Laurence
02 May 10, 16:10
A better choice

NS&I index-linked 1% above inflation - tax free - benefit from higher inflation and possible VAT rise. Up to £15K in 3 and 5 year options. In reality have to hold for 1 year to earn 1% bonus. Plan to invest and review what's available in one year's time. Surely better than fixing at the puny rates now available. February's index linked investments have risen 1.45% in 3 months.


Nadeem_Walayat
02 May 10, 16:44
NS&I Index LInked Certs

Hi

the index linked certs are a fantastic product as long as the inflation mega-trend gathers speed, and are included in the inflation mega-trend ebook as a way of protecting wealth.

But the minimum term is 3 years, so they should be compared against 3 year fixed rate accounts NOT Instant access or 1 year ISA's.

There are BIG penalties for early withdrawls.

Realistically BOTH ISA's AND Index lInked certs should form part of portfolios as BOTH provide for tax free savings which is a prime requirement as taxes are set to rise.

Best

NW


Laurence
03 May 10, 13:23
Correction

Hi, agree with your general philosophy re ISA's and NS&I however please read the following or download the spreadsheet calculator @ NS&I.

Index-linked Savings Certificates are designed to be held for the whole investment term to receive the full guaranteed compound interest. This is because the guaranteed rates of extra interest increase each year during the term. But if you do need to take money out earlier, it’s no problem – you can cash in Savings Certificates whenever you like. Any returns you earn are still tax-free. Savings Certificates cashed in within the first year of investing don’t earn any index-linking or extra-interest, so it’s best to keep them for at least a year. If you cash in your Certificates any time after the first year, you will earn index-linking and extra interest for each complete month you’ve held them. To cash in, ask for a form at a Post Office ® branch or contact us and we’ll send you one. To cash in a Certificate held jointly, both investors need to sign the form.


Nadeem_Walayat
03 May 10, 17:47
NS&I Indexing

Your right after 1st anniversary they can be cashed in and recieve indexation plus part interest for each complete month.


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