Best Cash ISA Tax Free Savings Accounts- Sept 2008
Personal_Finance / ISA's Sep 24, 2008 - 11:36 PMBy: Shahla_Walayat
The credit crisis meltdown that last week claimed the scalps of HBOS and Bradford and Bingley continues to exert upward pressure on UK savings interest rates as the banks are unable to borrow from one another on the interbank money markets. However the market has also witnessed drops in savings interest rates as the UK economy is slumping towards a recession with interest rate cuts, for instance Halifax has cut their Fixed Cash ISA rate from 6% to 5.5%. So it pays to do your home work as there is an extremely wide range of between 5% and 7.32%
As per my previous articles, the current interest rate climate still favors fixed rate savings of 2 or more years over instant access accounts as a UK recession could see interest rates sharply lower a year from now.
Selection of the Current Best Cash ISA accounts (Sept 08)
| Financial Institution | Interest Rate | Fixed Period | Minimum £ | Comments |
| Nat West | 7.32% | 1year | £1 | Tiered interest rate from 6.67% to 7.32%, depending on the amount transferred, i.e. to get 7.32%, (2% bonus) you have to transfer £27,000. |
| Ruffler Bank | 6.25% | 30 day | £3,600 | Have gradually cut their minimum from 15k to 9k and now to 3.6k |
| Bradford & Bingley | 6.25% | 1year | £3,600 | Interest paid on maturity. |
| Principality | 6% | Instant | £1 | Keep a sharp eye out for any change in rates. |
| Nationwide | 6.15% | 1 year | £1 | Longer fixes at same rate available |
| Northern Rock | 6.10% | 1 year | £500 | Probably the safest Place for your money as the bank is now owned by the government. Also offers fixes for 2 and 3 years. |
| Abbey Direct ISA | 6% | 1 year | £1 | Rate has been cut by 0.25% |
| Barclays Tax Haven ISA | 6.25% | Instant | £1 | Includes a 1% bonus for 12months - No Transfer in. rate has been cut from 6.50%. Barclays customer service has consistently proved to be poor in handling account openings. |
Best of the above:
Instant Access
Many Instant access accounts such as Kent Reliance and National Savings have left the table due cuts in savings rates. However Barclays re-enters the arena with an excellent 6.25% instant access account. The only problem here is Barclays lack of competency observed in opening accounts, which does not seem to have improved from last years. An alternative would be Ruffler's 30day notice account, as Ruffler do consistently offer a good rate relative to the market, therefore the experience is for them not to use the hook and drop tactic that many other bank and building societies employ.
Fixed Rates
The clear winner here is Nat West's amazing rate of 7.32%, so far I have not managed to find anything to suggest there is something hidden below the bonnet, other than to achieve that rate you would need to transfer a sizeable £27k. Still savings of £1 upwards earn a very respectable 6.67%. If you want ROCK solid protection for your savings then Nothing can beat Northern Rocks 6.10%, as the bank is owned by the government. The other alternative is Bradford and Bingley's 6.25%, though they are well experienced in hooking in savers on high rates then quietly dropping the rates by a large margin on the end of the fix.
The Credit Crisis and Your Savings Protection
Nadeem Walayat stated last week : "Currently UK savings are secured at £35,000 at 100%, this is proposed to rise by the end of this year to the first £50,000 at 100%. However as the Northern Rock example illustrated that the Government was prepared to step in and guarantee ALL savings at 100%, and therefore giving an unequivocal guarantee to savers so as to bring the Northern Rock bank run to a halt. Similarly should other retail banks such as HBOS fall over the edge of the credit crisis cliff, then similarly the expectations are for 100% security for all savers. However savers should take note of the difference between a high street retail bank such as HBOS and an Investment bank such as Lehman Brothers, therefore ensure that they definitely do limit exposure to non retail banks to £35,000. "
Summary of Cash ISA Rules & Benefits
- The CASH ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 6% cash ISA for standard rate tax payers is 7.2%. For higher rate tax payers it is 8.4%.
- The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
- The Allowance for 2008-09 is £3600.
- 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).
- 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.
- Ability to transfer Cash ISA monies into Shares ISA's but NOT from Shares ISA's to Cash ISA's.
For the best Fixed rate savings / bond see my recent article.
By Shahla Walayat
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