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Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018

Personal_Finance / ISA's Mar 04, 2018 - 05:23 PM GMT

By: Nadeem_Walayat

Personal_Finance

UK savers have just 1 month left to capitalise on their 20k annual tax free ISA savings allowance, and I am sure many are buoyed by mainstream financial press coverage of warnings of rising UK interest rates which includes for savers as well as borrowers as the Bank of England is expected to continue hiking UK base rates as it plays the game of follow the US Federal Reserve Bank leader and withdraw some of its support for Britain's banking sector such as the funding for lending scheme that resulted in a catastrophic downwards death spiral in UK savings interest rates when it first began in 2012. That resulted in UK savers being literally ripped off by the tax payer bailed out banking sector, the duration for which the banks that have continued to bank bonuses on the basis of artificial profits engineered by the Bank of England in an attempt at recapitalisng the bankrupt banks all whilst savers continue to suffer and pay the price in terms of real terms loss of purchasing power of savings as inflation continues to erode the heard earned wealth of Britain's savers.



UK Interest Rates

The following graph illustrates the collapse in market interest rates following the implementation of the Bank of England's funding for lending scheme and the most recent up tick in interest rates as the UK plays follow the US Fed leader.

So yes, market interest rates are rising but we in the UK remain a long way from normalisation for even short-term interest rates let alone longer term savings and borrowing rates, especially given current ongoing inflation spike.

UK Savings Interest Rates Collapse

My tracking of the Halifax Cash ISA's further illustrates the relentless collapse in UK savings interest rates. Firstly, the Halifax Mid 2016 withdrew virtually all of their fixed rate ISA accounts. However, to continue with this long standing series for when longer duration ISA fixed rates return, to the market,I have applied the percentage change on the 1 year fixed rate to fixes for preceding longer duration terms (in red) to illustrate what has happened to the UK Cash ISA savings market.

Halifax ISA's May 2012 Sept 2012 Nov 2012 Mar 2013 May 2013 July 2013 Mar 2014 June 2014 Mar 2015 April 2016 Aug 2016 Nov 2016 Feb 2017 June 2017 Feb 2018 % Cut
Instant Access
3%
2.75%
2.35%
1.75%
1.35% 1.35% 1.5% 1.30% 1.05% 0.60% 0.40% 0.35% 0.35% 0.28% 0.35% -88%
1 Year Fix
2.25%
2.05%
2.05%
1.75% 1.75% 1.65% 1.5% 1.40%   0.90% 0.65% 0.65% 0.6% 0.5% -77%
2 Year Fix
4.00%
3.25%
2.25%
2.5%
2.10% 2.10% 2.05% 1.8% 1.65% 1.25% 1.06% 0.75% 0.75% 0.6% 0.6% -85%
3 Year Fix
4.25%
3.75%
2.35%
3.00%
2.25% 2.25% 2.25% 2% 1.75%   1.125 0.80% 0.80% 0.64% 0.7% -84%
4 Year Fix
4.35%
3.80%
2.40%
3.05%
2.30% 2.30% 2.40% 2.10% 1.85%   1.19% 0.86% 0.86% 0.69% 0.8% -82%
5 Year Fix
4.50%
4.15%
2.60%
3.10%
2.35% 2.35% 2.5% 2.20% 2.00% 2.00% 1.28% 0.92% 0.92% 0.74% 1.00% -78%

 

Unfortunately for those who already save or are seeking to save with the Halifax then there is NO SIGN of recovery from the ISA INTEREST RATES CRASH CATASTROPHE! The Halifax continues to throw scraps off of its table to it's Cash ISA savers, this whilst the UK inflation rate has soared to 4.1% RPI and 3% CPI! Which means that the Halifax is definitely one of the top tax payer bailed out banks to avoid! Certain to delivery loss of purchasing power of savings where its best ISA accounts pays just 1/3rd the CPI inflation rate..

Cash Best ISA March 2018

Whilst the Halifax remains as a big fat fail, are there any Cash ISA providers that are managing to come anywhere near matching CPI inflation, let alone RPI? Having scoured the ISA market then these are the current accounts that stand out in terms of being the least worst ISA saving accounts to cope with soaring inflation.

Term Interest Rate Provider Comment
Instant 1.21% Nottingham BS Allows Transfers In
1 Year 1.45% Leeds BS Allows Transfers In
2 Year 1.66% Virgin Money Allows Transfers In
3 Year 1.87% UBL Allows Transfers In
5 Year 2.21% UBL Allows Transfers In
5 Year 2.25% Charter Savings Bank Allows Transfers In

 

With CPI hovering near 3%, then NO, ALL of the ISA providers are a big fat FAIL for not coming anywhere near even matching CPI Inflation let alone RPI of 4%! This is what happens when the Bank of England supports its banking brethren for over 8 years with printed money! all backed by Britain's sucker tax payers who continue to be fleeced of the purchasing power of their hard earned savings. The solution of course is to invest in assets that are LEVERAGED to central bank money printing, such as housing and stocks as I have covered extensively in over 1000 articles and videos over the past decade.

The bottom line is that UK interest rates ARE rising but the savings interest rates are NOT, in fact several such as Virgin money have CUT RATES this year (Easy Access ISA was 1.21%, now 1.16%). Another is Leeds BS which was paying 1.85% a few weeks ago on a 3 year fixed rate ISA but that has now been cut to 1.60%.

Therefore it would appear to be unwise to fix rates for MORE than 1 year, and definitely not for 5 years at this point in time, as logic dictates that 'eventually' UK savings rates should start to rise to reflect market rates i.e. I would expect the 5 year fixes by the end of 2018 to be offering 3% rather than the present best of 2.25%. Though that depends on what the Bank of England gets upto behind the scenes in support of its banking sector brethren.

Alternatives to Traditional Cash ISA's

So what to do if savers are determined to retain a sizeable rainy day cash savings fund?

Well that depends on ones age and family circumstance, for instance -

1. Do you have children?

2. Are you under 40 ?

3. How close are you to 55 years of age or already beyond?

Child / Junior Cash ISA's

Whilst one will be very lucky to find a cash ISA account that pays more than 2.5% today, i.e. the best I can see out there is 2.25% for a 5 year fix! That's right! FIVE YEARS! In my opinion any savings account that pays less than RPI amounts to stealth THEFT, and with RPI currently at 4% that means every savings account being sold today guarantees the theft of the value of ones savings!

However there is a glimmer of hope for people with children, in fact children under the age of 18 can be utilised to park long-term savings with tax free! AND the rates typically double the adult rate! For instance the current best rate is with the Coventry ISA that pays 3.5% per year!

Key points are that there is a deposit limit of £4,128 per tax year and the funds cannot be accessed until the child turns 18. Oh and the money belongs to child, so you have to factor in whether ones sweet 13 year old will become a rebellious 18 year old and decide to blow the money on a fast car or worse drugs!

Life Time ISA's (LISA)

LISA's are George Osborne's (remember him?) March 2016 bribe to savers / cash give away that went live in April 2017. Unfortunately only available to the UNDER 40's! For every £4k (max) deposited each year the government will top the LISA up with a £1k bonus or 25%. That's potential free money from the government of £32k! from Age 18 to 50. WITH interest on top! Albeit today's interest rates of 1% are rubbish.

However there is a catch. The money can either only be used to buy ones first home, OR be locked in until Age 60! So it really is a long-term inflexible savings vehicle. But in my opinion very much worth it as part of a savings portfolio!

There is also the Help to Buy ISA, but that only results in a maximum bonus of £3k. However you could have BOTH a HTB and LISA but you can only utilise ONE to buy your first home, which means the HTB and thus would be locked into the LISA until age 60. However you can transfer EXISTING HTB's into a LISA as of April 2017.

Pension Contributions

And finally if your nearing the minimum age for drawing down on private pension pension at age 55 such as the SIPPs. Then you could look to top up your pension fund and the tax man will ADD to it at your highest tax rate!

For everyone, no matter whether one pays any tax or even works the minimum top up is 20% i.e. for a £1k contribution one would deposit £800 and the tax man will top it up with £200, that's a 25% instant return on ones deposit!

Whilst a 40% tax payer for a £1k contribution would only need to deposit £600, with the tax man topping up with £400, thus an instant 66% return on ones deposit.

Of course the money is taxable when drawn, and would need to be invested of which the safest asset class would be short-dated bonds.

So there you have 3 methods towards alleviating Britain's savings crisis. All of which need careful thought before entering into and are best part of an overall portfolio of long-term savings strategy so as to retain flexibility whilst maximising return on ones capital.

Failing that you could just opt to spend your savings rather than subsidise the banks, for instance now is still one of the better times of the year to buy a used car in the UK.

Best Time / Month to Buy a Used Car From a UK Dealer

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2018 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 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 focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 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.

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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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