Early ISA deadline: Best ISA deals available now
Wednesday, 23 February 2011 02:22
By Kate Saines
It's virtually impossible to walk into a bank at the moment without running into a board advertising "great rate ISAs", or being accosted by an assistant promoting "fantastic fixed-rate cash ISAs".
Likewise, if you are an online banking customer, you have probably had to trudge through swathes of similar promotional leaflets before you can reach your statement.
And if you are already an ISA investor you have no doubt already received a gentle reminder from your provider to invest this year's tax-free allowance before it's too late.
Either way, there is absolutely no doubt that ISA Season is now well and truly upon us. And while rates might be low, the competition in the ISA marketplace is rife.
This may well be down to the fact that few of us seem to be investing. Research by Nat West and RBS found since the beginning of the current tax year in April 2010, just 16 per cent of UK adults opened a cash ISA.
And the reason for this, according to the investigation, is because a large majority of people (39 per cent, in fact) want instant access to their funds.
The problem is the rates for instant access accounts are very low. The higher rates tend to be found for the fixed-rate products, but these require you to lock your savings away and often ask for high deposits.
So which will suit you, and where can you find the best deals? Here's a rundown of some of the best ISAs currently on the market.
Instant Access ISAs
Instant access cash ISAs usually offer flexibility but the lowest rates. They are ideal for people who are saving for the short term – for a holiday or home improvements, for example.
Nationwide has boosted the rate on its e-ISA, meaning anyone opening the account after February 1st will receive 2.9 per cent tax-free interest on their savings.
There is a catch, however, which is the variable rate includes a 1.15 per cent introductory bonus.
And there's bad news if you bank elsewhere as the ISA is only available to existing Nationwide customers – you must already have a card-based account with the building society.
On the plus side, though, the bonus runs until July 31st, 2012, so you have 18-months to take advantage of the inflated rate.
What's more you can make unlimited withdrawals from the account, which requires a deposit of just £1 to open, and can make as many deposits – up to your ISA allowance limit – as you like.
If you are not a Nationwide customer, Santander is offering 2.85 per cent on the latest issue of its Flexible ISA.
The account, which allows customers penalty-free instant access to their savings, tracks the Bank of England base rate for 12 months.
This means, if interest rates begin to increase in the next year savers will benefit from that rise. There is a guarantee for 12 months too, which assures customers the rate will not drop below the initial 2.85 per cent.
A minimum of £1 is needed to open the account, and you do not need to be a Santander customer to qualify.
You can apply for this account through the Myfinances.co.uk comparison table
If you are a Santander customer, however, you can take advantage of the bank's Loyalty Flexible ISA which offers a three per cent rate, tracking 2.5 per cent above the Bank of England Base Rate.
Fixed-rate ISAs
Fixed-rate cash ISAs are for those of you who do not need access to your cash straight away, but don't want to take the risk of investing in the markets.
There is a pattern to fixed-rate ISAs, which is the longer the term, the higher the interest rate will be.
Nationwide has just launched a range of fixed-rate deals which offer interest of between 2.75 per cent and three per cent for a one-year deal, up to 3.25 per cent for an 18-month ISA, and up to 4.25 per cent if you lock your cash in for four years.
So, if you think you won't need to access your savings and are happy to let it sit in the vaults gathering interest for years, these are the ISAs for you. And you'll reap some healthy rewards.
Nationwide's deals are very accessible to all as you need just £1 to open an account and its rates are typical of some of the best fixed rates around.
If you are keen to stash your cash for four years, Halifax is paying 4.25 per cent to savers investing in its four-year fixed-rate ISA.
And Bank of Scotland is offering the same rate for its four-year fixed-rate deal. Both accounts require a minimum of £500 to be deposited.
Check out some of the best fixed rate deals at Myfinances.co.uk comparison pages.
If you are looking for shorter-term deals, Leeds Building Society is paying three per cent on its 18-month ISA and Skipton Building Society is offering 2.95 per cent for a one-year deal.
Stocks and Shares ISAs
If you want higher returns and are willing to put your money away for five years or more, these are the products for you.
There are thousands of investment products out there into which you can invest your ISA allowance.
When you take out a stocks and shares ISA you could be investing in an investment fund like an OEIC (open ended investment company), investment trust or unit trust, or possibly some kind of structured product or perhaps even an ETF (exchange traded fund).
Your ISA allowance is then 'wrapped' (the technical term used in the finance world) around this product to provide you with the tax-free returns.
The problem with this type of ISA is that there's no way of knowing how much interest you'll make. It's based on how the products, and their underlying assets, perform in the markets.
You can research their past performance – there will be statistics available from a variety of sources including the provider on how well it's done in the past.
And you can study how the markets you are investing in are expected to perform in the future. If you invest in a UK Smaller Companies Fund, for example, you can read commentaries from economists on how businesses in this area are likely to fare in the future.
But aside from that you are essentially taking a bit of a gamble.
The good news is stocks and shares ISAs are recommended to people who want to invest over the long term. And over the long term, the markets tend to make gains.
Fidelity International calculated if you put your full cash ISA allowance since the tax-free savings scheme began back in 1999 into a interest only savings account it would have returned just 21 per cent by the end of last year.
This compares to 305 per cent interest you would receive if you had invested in Fidelity's South East Asia fund via a stocks and shares ISA.
Remember, also, that only £5,100 can be invested into a cash ISA. So, if you have more, and you want tax-free returns you'll need to choose a stocks and shares ISA.
Some cash ISA providers will reward you for investing in the markets as well as taking out a cash ISA. Santander, for example, is offering 5.5 per cent interest on its Super Flexible Cash ISA for customers who also open a qualifying investment product.
Meanwhile, Nationwide offers customers financial advice to help them ascertain whether a stocks and shares ISA would suit them.
In fact, if you are making your first foray into the world of stocks and shares ISAs, seeking help from a financial adviser would be a good idea as they will help you assess your attitude to risk and recommend the best products.
For more information on some of the investment ISAs available, see our comparison table.
Comments
Newsletter sign up