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6 Critical Money Making Rules

Best Cash ISA Savings Account as April 5th 2011 Tax Year Deadline Looms

Personal_Finance / ISA's Feb 18, 2011 - 03:18 AM GMT

By: Nadeem_Walayat


Best Financial Markets Analysis ArticleWith UK Inflation soaring on even the governments preferred measure of CPI at 4%, which stands against the more recognised RPI rate at 5.1% and real inflation as experienced by most of the population at 6.6%, UK savers continue to have the real terms value of their life time accumulated savings effectively stolen so as to bolster the bankrupt bailed out banks balance sheets, savers can lessen the stealth theft of wealth by utilising their annual cash ISA allowances before the end of the current tax year (5th April 2011) as it is a case of use it or lose it.

Cash ISA's being tax free favour tax payers and are especially beneficial to higher rate tax payers. If you have already utilised this years ISA allowance, savers should still ensure that they check the interest rates being paid on ALL of their cash ISA accounts on a regular basis, especially for those accounts that have matured as the banks and building societies are notorious for including 1 year bonuses that disappear on anniversary or dumping matured fixed rate accounts into pittance paying cash ISA accounts paying as little as 0.1%. i.e. 1/30th the rate of a typical top paying instant access account, which on an ISA account balance of £5,100 means the difference between receiving £5.10 or £153 in interest per annum.

Current Savings Interest Rates Market

Current savings interest rates remain depressed in the region of between 2% and 3% for instant access accounts. Fixes are available of as much as 4% if savers lock in rates for several years. There is growing press speculation that UK interest rates could start to rise this year, which suggests higher future interest rate expectations imply instant access accounts should be favoured over fixes at this point in time. My next in-depth analysis will seek to conclude towards an interest rate trend forecast for 2011 (in the next few days). Ensure you are subscribed to my always free newsletter to get this analysis and forecast in your email in box.

Tricks Banks and Building Societies Play on ISA Savers

One of the biggest tricks that the banks and building societies tend to play against ISA savers is to offer a lower interest rate on ISA's than similar non ISA saving accounts, therefore wiping out virtually all of the tax free benefits of a Cash ISA account for basic rate tax payers. Yes it is highly unethical behaviour by a banking sector that tax payers are still being forced to pay for, whilst the bankster's pay themselves billions in bonuses on the basis of fictitious tax payer funded profits. However there are other benefits to ISA's in terms of tax credits and self assessment tax returns, where the interest earned is not counted.

Best Instant Access ISA's

Where possible, non cash ISA accounts are also listed for comparison purposes in light of the ISA interest rate trick mentioned above.

Financial Institution Interest Rate Minimum £ Comments
Nationwide E ISA 2.9% £1 Allows transfers in, includes a 1.15% bonus until 31st July 2012 - So remember to switch. Non ISA similar account pays 2.95%.
Santandar Flexible ISA 3 2.85% £1 Does NOT Allow transfers in, Base rate + 2.35% tracker for 12 months then drops to a pittance of 0.5%. Non ISA similar account pays 2.90%.
Halifax Direct ISA 2.80% £1000 Allows transfers in, rate for 12 months then drops to a pittance of just 0.5%.
Principality BS E ISA 2.80% £1000 Allows transfer in, includes a bonus of 1% for 12 months, so remember to switch on maturity.


Best Current Fixed Rate ISA's (1 Year)

Financial Institution Interest Rate Fixed Period Minimum £ Comments
Barnsley E ISA 3.2% 1 Year £100 Allows transfers in, open online only, interest rate fixed until 29th Feb 2012.
Northern Rock 3% 1 Year £500 Allows transfers in, Open by Online or Branch. Fixed until 24th March 2012. Non ISA similar account pays 3%.


Which ISA ?

Nationwide just squeaks through to come top of the list because it's instant access rate of 2.9% lasts for over 18 months. The Santander would be a good hedge against rising interest rates as it tracks the base rate, but for only 12 months from account opening.

Of the 1 year fixed rates, Barnsley clearly stands out with its 3.2% rate, a good 0.2% above its closest rival.

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 £80,000 (Euro 100,000) per person, per institution. Those with sizable savings that total more than £80,000 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 to £5,340.

Source and Comments:

By Nadeem Walayat

Copyright © 2005-11 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 24 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 600 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.

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

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


18 Feb 11, 11:57
Rip Off Britain

So Savers feel they may get ahead by earning a 3% return on cash ISA's but the rate of inflation is 5/6% so their financial intelligence is 0 because in effect they are losing money over the medium term as opposed to making it. Best bet, investing in equities over the long term, that means years not weeks or months and with quality stock picks an average of 10% is pretty realistic far better than the negative number offered by the banksters.

18 Feb 11, 12:52
stocks are high risk

Yes, savers in Britain are being ripped off by an estimated 3% per year loss of capital value.

But the stock market is high to very high risk.

Quality stock picks can literally blow up in ones face such as BP did during summer 2010.

Investors will continue to wakeup to top quality companies going bust Enron style, and especially where the emerging market stocks are concerned.

Therefore investors cannot invest more than about 15% to 25% of their portfolio in stocks because the risks are very high, no matter which stock is selected.



Shelby Moore
18 Feb 11, 19:52
stock index vs. gold

re: stocks are high risk

...and any _WESTERN_ stock index plotted again gold since about 2001 or so, show gold outperforming.

Remember in secular cycles of negative REAL interest rates, DJIA/gold ratio returns to 1 (or below). It is now around 9 and has been falling since the secular peak of stocks in 2001.

Diversification into a stock index won't help, just buy gold instead. And if you have a long term frame, silver is even better (silver is not better if you hold short-term, because the volatility can murder you). Traders who think they can trade silver better than a long-term hold of silver, are going to get an education into the value of gambling. One might be able to trade the gold/silver ratio effectively (one trade every year or two), but not the silver fiat price. You can prove this to yourself by comparing the increase of your networth since 2003, as compared to if you had purchased silver and held it with no trades.

19 Feb 11, 06:05
Risk Control

Most people in the markets who claim to be investors are in effect really we all know Speculators, they are pure gamblers who in all likelihood never even look at the balance sheet of the company they own, or historic and future earnings, or valuation metrics. Risk can be controlled with stop losses, had an investor invested in BP, and suppose had a portfolio of 10 stocks (diversified), then a fall in BP would have put 10% of their capital at risk, had they been disicplined and had a 20% stop loss, only 20% of the 10% at stake would have been lost, ie 2% loss of capital. This is a business of percentages and risk control.

As i said before, risk comes from not knowing what you are doing, speculators in the guise of investors probably had all their money tied up in BP or say a few other commodities stocks and when they tank they blame and curse the stockmarket, when in reality its their own fault, as said before they never bother reading a book on trading or investing, and learning about valuation techniques, so perhaps Nadeem you are 100% right, it is too risky for most people because from judgement most people don't have a clue about valuations, forget divergences thats just alien talk to them. I would argue that most private investors are gamblers with no strategy, they follow each other like sheep, this month its emerging markets, so they all jump in to those stocks over there, or those funds, next month its commodities so they all jump in there, after that month, its tech,then banks, then bonds, believe it or not many private investors are now jumping onboard currency trading(Thats high risk) because they want to make up for losses during the last crisis( had they stayed the course they could have recouped and made more money). I am amazed at the number of investors who have just loaded up on banks all believing they will make a killing in the future, and then wondering why their shares get trounced during corrections, and why they are stuck in a trading range look at RBS. I see private investors make the same mistakes over and over and over again, most sadly get what they deserve which isn't underperformance, but heavy losses.

19 Feb 11, 06:34
Stocks and Stops

The problem with stop losses is the likes of flash crashes either market wide or on individual stocks that occur quite frequently as it is driven by high frequency trading.

Those invested in ultra safe banks such as HBOS have been totally wiped out.

Risk control is portfolio wide, to balance high risk stock positions one needs other lower risk asset classes, that way even a 50% stock market crash won't cripple ones portfolio.

If your going to invest in individual stocks then ones focus should be for the very long term and seek consistent high dividend income payers, because in my experience that is the only indicator of a well run company that is less likely to go bust as opposed to phony financial data pumped out by the boards.

Enron showed you cannot trust the financial statements and balance sheets. There will be many more Enron's to come especially in the Emerging Markets as giant corporations will be found out to be total frauds and all invested monies will be lost.

19 Feb 11, 09:12
Risk Analysis

I agree with your analysis, I am very sceptical of emerging markets, you are right in that like Enron, it is so easy to guise the balance sheets of these companies. I invest in UK equities and so far no company I have invested in has gone bust, and i have been investing for over 8 years. I always check cashflow and gearing, as well as net debt, and read latest company reports and am very cautious in this respect. But you are right in that for most investors a balanced portfolio is optimum to prevent crippling losses.

I will always remain suspicious of emerging markets, as their is no real regulation of these markets, then again who said UK and US markets were ever really regulated.

I agree that dividends are one excellent guage of company health, but in isolation dangerous.

Thanks for all your hardwork and analysis on the markets, your blog visitors and I much appreciate it.


20 Feb 11, 09:26
Imported Inflation

I would very much like to hear your comments regarding the Governors statement about much of the inflation being imported. Presumably this is code speak for saying putting up interest rates will not have any impact on inflation so lets leave them alone. Clearly, Andrew Sentance doesn't buy this - what's your take on this - I am intrigued to know.

20 Feb 11, 12:30
Bank of England Inflation Propaganda

The Bank of England is engaged in economic propaganda, they have not been tracking 2% inflation since October 2008 when Gordon Brown told them to forget about inflation and instead target 2% GDP, which is where we remain.

Everything the BoE has stated since has been worthless propaganda!



22 Feb 11, 11:11
uk interest rates


It's late, and time keeps working against me. But it remains my primary focus where analysis is concerned as without it, I can't look at UK housing.



23 Feb 11, 07:27
Risk Analysis


Surely one investors interpretation of risk is different to another? The hard facts present themselves on the corporate books, but the softer facts are subjective. I know of individuals who have invested in nothing more than boiler room stocks with reasons as ridiculous as “I’m certain the Burmese govt will allow them to drill for oil”. By the end of the year they end up doing better than buffet! Likewise, we have the big CFA analysts investing in HBOS and Enron alike which are ultimately the same boiler room stock with a tuxedo.

Investors have certainly forgotten what business is all about. Investing in stock should be a simple set of rules. One man’s investor is another man’s speculator. Soros is known as a speculator and Buffet as an investor; but their diligence is comparable.

I think the bridge which links investment and speculation will never be built.

Diane Cleak
23 Feb 11, 15:08
DOW Analysis

Hello Nadeem,

You have been so spot on with your DOW analysis, that I am looking forward to viewing the next one you promised us for February. I am sure that many of us would be most interested to hear your analysis for the rest of this year.

All best wishes,

Diane :)

25 Feb 11, 09:06
Dow Analysis

My focus is on uk rates then housing, which is the direction towards which I have been engineering my portfolio. I will try and slip the dow in between this analysis but stocks outlook is not my primary consideration at this point in time,



25 Feb 11, 14:07
Dollar / Gold


How about a Dollar INdex update?

Gold and Silver?

25 Feb 11, 14:08
Dollar - Gold


I am flat on gold, and my last indepth analysis was for Dollar to target a trend to below USD70 by mid 2011.



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