Best Cash ISA Tax Free Savings Account Update November 2009
Personal_Finance / ISA's Nov 13, 2009 - 12:33 AM GMTBy: Nadeem_Walayat
Savers with cash ISA accounts need to ensure that they check the interest rates being paid on a regular basis, especially for those accounts that have matured as the banks and building societies are notorious for cutting rates on existing accounts and dumping matured accounts into pittance paying cash ISA accounts, paying as little as 0.1%. i.e. 1/30th the rate of a top current instant access account which on an ISA account balance of £3,600 means the difference between receiving £3.60 or £108 in interest per annum.
The state of the bailed out bankrupt banking system and weak debt fuelled economic recovery suggests that the UK base interest rate looks set to remain low for another year. So the optimum account would be to fix for the next 12 months as there is expected to be little movement in savings rates during this period. However, the current spread between the best 1 year fix of 3.25% and instant access account of 3% is just 0.25%, therefore would better suit those without a lump sum to invest or seeking a more flexible instant access facility for the next 12 months.
Best Current Fixed Rate ISA's
| Financial Institution | Interest Rate | Fixed Period | Minimum £ | Comments |
| Principality BS | 4.2% | 3 Years | £3,600 | 3 Years is too long to fix, too much uncertainty especially given consequences of Bank of England Money Printing. |
| Bradford & Bingley | 3.75% | 2 Years | £1,000 | Accepts transfers in. (1st Dec 2011). |
| Julian Hodge Bank | 3.25% | 1 Year | £3,600 | Postal Account only. Print and post application form |
| Northern Rock | 3.2% | 1 Year | £500 | Tax Payer owned Bank - On maturity converted to a 30 day notice ISA paying a pittance. |
Best Current Variable Rate ISA's
| Financial Institution | Interest Rate | Minimum £ | Comments |
| First Direct | 3% | £1 | Accepts transfers in. Rate fixed until 9th November 2010 then drops to just 0.2%. Useful to aggregate lots of separate ISA's into own high paying (relative terms) account. operated online. Interest added monthly. First Direct is a division of HSBC Bank. |
| Cheshire BS | 3% | £500 | 120 day notice for withdrawals, allows transfers in. Includes a bonus of 0.75% until Dec 2010. |
| Standard life | 2.65% | £1 | Is about to be taken over by Barclays. Postal / Online, allows transfers in. |
| Barclays Golden ISA | 2.58% | £1 | Barclays mortgage holders can offset their mortgage balance against their ISA balance and hence boost their effective return on ISA savings. |
In conclusion, the First Direct instant access account paying 3% appears to be the optimum Cash ISA account under the current market and economic circumstances which offers a fixed rate coupled with flexibility should the Bank of England lose control of monetary policy in the wake of a debt fuelled sterling crisis.
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 2009-10 is £7,200, £3600 for cash and £3,600 for shares ISA's or £7,200 in a shares ISA. For over 50's the allowance as of 1st October is £10,200 at £5,100 for cash and shares. The new allowance will apply for all savers from 6th April 2010.
- 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 £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.
- 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 .
By Nadeem Walayat
http://www.marketoracle.co.uk
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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 the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 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
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