Whats the consensus about how long to fix your cash ISA for.

paul5046

My fixed rate cash ISA with the Halifax has just matured and i have the option of.

1. 1 year at 2.6%
2. 2 year at 3.5%
3. Longer at X %
4. Shop around (for a slightly better deal, but with the hassle of transferring)

Its for 30k.

Megalomaniac

I don't think there is a consensus at present as no one knows what will happen - could be anything.

For me, I am fixed at 3.75% with [STRIKE]Dunfirmline[/STRIKE] Nationwide until October 2011 which when I signed up to it (going against the majority at the time who were fixing for a year), I thought was a good deal. Now I am not so sure, and maybe rates will increase in 2010/11 as we (very) slowly come out of recession. Still, at least it has been earning 3.75% from when I opened it till now whereas I would only receive ~2.5% in an instant access account.

Something to consider is that interest rates were SLASHED, not dropped by 0.25% each month. To get back to the 5% base rate, it will require a base rate rise of 0.25% EVERY month for the next 18 months, which I don't think will start until 2010. I wouldn't expect to see it rise by 0.5% each month or more, or even expect it to rise every month.

So for me, it would be either of 2 options. Firstly, an instant access @ 2.75% (and hope the base rate starts to rise) or fix at 3.5% for 2 years. I wouldn't fix now for a year, it's already bottomed out. For 3 years or more, that's a long time...

How about splitting your pot of money and exploring both routes?

paul5046

Megalomaniac wrote: »

I don't think there is a consensus at present as no one knows what will happen - could be anything.

For me, I am fixed at 3.75% with [STRIKE]Dunfirmline[/STRIKE] Nationwide until October 2011 which when I signed up to it (going against the majority at the time who were fixing for a year), I thought was a good deal. Now I am not so sure, and maybe rates will increase in 2010/11 as we (very) slowly come out of recession. Still, at least it has been earning 3.75% from when I opened it till now whereas I would only receive ~2.5% in an instant access account.

Something to consider is that interest rates were SLASHED, not dropped by 0.25% each month. To get back to the 5% base rate, it will require a base rate rise of 0.25% EVERY month for the next 18 months, which I don't think will start until 2010. I wouldn't expect to see it rise by 0.5% each month or more, or even expect it to rise every month.

So for me, it would be either of 2 options. Firstly, an instant access @ 2.75% (and hope the base rate starts to rise) or fix at 3.5% for 2 years. I wouldn't fix now for a year, it's already bottomed out. For 3 years or more, that's a long time...

How about splitting your pot of money and exploring both routes?

Good comments. I personally feel rates are as low as they will go, so fixing for a year is in effect, waiting for a year for options to improve.

Megalomaniac

paul5046 wrote: »

Good comments. I personally feel rates are as low as they will go, so fixing for a year is in effect, waiting for a year for options to improve.

But they can't fall any further (bar 0.5%) - realistically they can only go up. If they do go up, variable rate products would generally match that rise (mortgages I'm certain would and in turn would hope savings accounts would as well).

Just think to yourself. Fix at 2.6% with Halifax for a year, or open a variable rate with IF @ 2.75%. If bank rates rise, IF are much more likely to increase their interest rates than Halifax...

john_s_2

The BoE rate mightn't fall much further but there's nothing stopping the banks (and building societies etc) dropping their rates to whatever they please (or at least, what they think makes sense).

The top rates are at a higher margin than historically normal over BoE. (As are lending rates.)

paul5046

Megalomaniac wrote: »

But they can't fall any further (bar 0.5%) - realistically they can only go up. If they do go up, variable rate products would generally match that rise (mortgages I'm certain would and in turn would hope savings accounts would as well).

Just think to yourself. Fix at 2.6% with Halifax for a year, or open a variable rate with IF @ 2.75%. If bank rates rise, IF are much more likely to increase their interest rates than Halifax...

IF, sorry i only deal with banks that have a high street branch.

Reaper

paul5046 wrote: »

IF, sorry i only deal with banks that have a high street branch.

Why? On average High Street banks have worse rates.
Is it a safety thing? If so consider the majority of consumer bank failures have been High St names.
Is it customer service? My worst experiences have been on the High Street. Abbey and Nat West in particular.

paul5046

Reaper wrote: »

Why? On average High Street banks have worse rates.
Is it a safety thing? If so consider the majority of consumer bank failures have been High St names.
Is it customer service? My worst experiences have been on the High Street. Abbey and Nat West in particular.

Its a safety thing. Where are the only places people lost money.

BCCI
Icelandic banks
Barings

No branches where i live.

Megalomaniac

john_s wrote: »

The BoE rate mightn't fall much further but there's nothing stopping the banks (and building societies etc) dropping their rates to whatever they please (or at least, what they think makes sense).

The top rates are at a higher margin than historically normal over BoE. (As are lending rates.)

True, but with instant access you can always transfer your ISA if they do drop

And Paul, if you want the best deal, you often have to look outside of your town centre. I believe IF are part of the Bank of Scotland, which Halifax is a division of too. IF you wouldn't want to go with IF on the grounds of safety, then why are you banking with Halifax (a similar division of the Bank of Scotland). In turn, this refusal to deal with IF rules out Lloyds TSB as an option for your cash ISA funds.

apt

You could think about the Norwich and Peterbrough 5 year fix at 4.55%. Yes five years is a long time, but it is possible to close the account losing 120 days interest. Even if you were to close the account after a year you would still get over 3% interest.

paul5046

apt wrote: »

You could think about the Norwich and Peterbrough 5 year fix at 4.55%. Yes five years is a long time, but it is possible to close the account losing 120 days interest. Even if you were to close the account after a year you would still get over 3% interest.

If you closed it would you still be able to transfer the money in ISA status.