Savers have had their hopes raised and then dashed over the past few weeks, and as usual will need to work hard to find the best interest rates as we come up to the traditional ‘ISA’ season.
Despite the ‘forward guidance’ issued by the Bank of England last year, that they would consider increasing interest rates when the rate of unemployment hit 7%, any early rise in interest rates now seems unlikely.
Speaking on the BBC’s Andrew Marr show, Mr Carney said that he wanted to give “comfort” that interest rates won’t rise until jobs, wages and spending reached “sustainable” levels.
The simple translation for savers?
Don’t hold your breath expecting a rise in interest rates anytime soon!
There was one small chink of light at the end of the tunnel, as it was announced inflation fell to 1.9%, making it easier for savers to get a real return on their cash. Furthermore, there is still hope that as the effects of the Funding for Lending scheme subside, banks and building societies will return to savers for their financing and push up rates.
But for the meantime, as we move towards the end of the tax-year and with interest rates unlikely to change, where can you get the best return on your Cash ISA?
We’ve analysed the market and this is what we’ve found, starting with new Cash ISAs and then looking at transfers.
In the current tax-year you can pay up to £5,760 into a Cash ISA. In the 2014/15 tax-year, which starts on the 6th April 2014, this will increase to £5,880
The Stafford Railways Building Society Cash ISA offers an attractive rate of 1.75% and is very accessible with a minimum balance of just £1; however it is only available by post or via a branch.
For savers who want online access, the Nationwide Building Society Flexclusive ISA (Issue 6) pays 1.71% gross per year, but be careful, this will drop by 0.75% on 31st January 2015 as the initial bonus falls away.
For savers who want online access and a simple variable rate of interest without a bonus the HiSave Remittance Account from ICICI Bank pays 1.50% with an initial minimum contribution of just £1.
Fixed Rate Cash ISA – short term
For savers looking at a one year fixed rate Cash ISA, the Chelsea Building Society and Yorkshire Building Society lead the way. Each offer a fixed rate of 2.00% until 31st July 2015 and both have low minimum contributions of £100.
The Chelsea account can only be opened online, whilst the Yorkshire Building Society ISA must be opened by post or in a branch.
The best two year rate is currently offered by the National Counties Building Society. Their 10th Issue Fixed Rate Cash ISA currently pays 2.10% and is available online, in a branch or via the post.
Fixed Rate Cash ISA – long term
Many savers are currently avoiding longer term fixed rates, fearful they will be trapped in uncompetitive accounts if rates rise in the future. However, other savers feel it is the only way they can get a return above inflation and are therefore prepared to take that risk.
Four year fixed rates are rare, with far more options available for three and five years.
The Coventry Building Society’s Fixed Rate Cash ISA (Issue 19) currently offers the best three year fixed rate, paying 2.75% per year. Although the minimum deposit of £5,760 will make it inaccessible for anyone who doesn’t want to make the maximum possible ISA contribution.
The Virgin Money Fixed Rate Cash E-ISA (Issue 61) provides a more accessible option, with just £1 needed to open the account, although the interest rate is slightly lower at 2.40% per year.
Turning to five year fixed rate Cash ISAs, the Leeds Building Society currently offers 3.05% per year, fixed until 31st March 2019.
The account can be opened with just £1 and is available online, via the post or in a branch.
If you already have a Cash ISA, you can transfer the account from one bank or building society to another. You do this by asking the provider of the new ISA to arrange the transfer; you should not close the first account and try and move the proceeds as this would be treated as a new contribution.
Not all Cash ISAs will accept a transfer, so which ones should you consider?
Instant Access Cash ISA, that accepts a transfer
The Britannia Building Society’s Select Cash ISA (Issue 2) pays 1.75% and will accept a transfer, although it is only available via a branch or the post, not online or over the phone.
Fixed Rate Cash ISA, that accepts a transfer – short term
If you are looking for a one year fixed rate Cash ISA both the leading accounts from the Chelsea and Yorkshire Building Societies are available for transfers in, the interest rate and other terms are the same as for new contributions.
When it comes to two year fixed rates the National Counties Building Society is the most competitive.
Details for both these accounts are given above.
Fixed Rate Cash ISA, that accepts a transfer – long term
Unfortunately the three year fixed rate Cash ISA from the Coventry Building Society won’t accept transfers in, which makes the Virgin Money Fixed Rate Cash E-ISA the most competitive option, paying 2.40% per year.
For savers looking to transfer their Cash ISA and tie up their savings for five years the Leeds Building Society Cash ISA paying 3.05% per year is the most competitive account.
Work your savings hard
Whilst interest rates stay low you really do have to work your savings hard to get the best possible return. This means:
- Using your Cash ISA allowance each and every year to effectively increase your return by paying no tax on the interest you receive
- Shopping around for the best interest rate
- Don’t forget existing Cash ISAs, consider whether you can get a better interest rate by transferring
Remember too that sometimes you need to act fast, the best deals are often only available for a short period of time and can be withdrawn with very little notice.
The all-important small print
All rates are correct at the time of writing, 18th February 2014.
Before you open a Cash ISA you should check that the rate, or the terms and conditions, have not changed.