Cash ISAs - are the rates worth it?

ET1976

I have had a cash ISA for years without really thinking about it, just figured it was a good thing to do as it's tax free.

Now I have 10k coming out of a bond which has matured and am looking for somewhere else to save it, which got me thinking am I doing the right thing having the ISA?

The best rate I can see for a cash ISA is 3%, but from a brief look around I can get 4.35% on a 2-year bond with AA (I know there is a 90-day withdrawl penalty thing but I'm discounting that as I can't see
I will need the money over the next 2 years). Doing a quick calculation (I'm a lower rate tax payer), surely I am better off with the money in a higher interest but taxable account?

Or am I missing something?

Are there (better) ways of saving tax-free other than ISA's?

Sorry to be so ignorant!

Lokolo

You have to think longer term.

Yes in the shorterm you have the option to put the £10k in a better paying account. But what happens if in 2 years you can get a better ISA than general savings account? You can't put that £10k back into ISA because there are limits.

Then what?

ET1976

Is that likely to happen though? Or are cash ISA rate always below taxable accounts? And if not, why are they so far below at the moment?

Lokolo

Because the banks are being ghey.

My cash ISA rates have been higher than normal savings rates at times. Now that I've fixed them and rates plummeted I have been a lot better off.

Also you must think about higher rate taxpayers.

Jonbvn

OP,

Thank about putting your cash ISA money into fixed rate cash ISA's. There are lots of them. http://forums.moneysavingexpert.com/showthread.html?t=401374

ET1976

Lokolo wrote: »

Also you must think about higher rate taxpayers.

why? I'm not one and unlikely ever to be.

Lokolo

ET1976 wrote: »

why? I'm not one and unlikely ever to be.

Ah don't be so pessismistic! You might!

Baldur

My current fixed-rate Cash ISAs are paying from 3.75% (just under 4.69% in a taxable account); 6.5% (just under 8.135% in a taxable account) and 6.2% (7.75% in a taxable account) and two of the three are one year accounts - the other runs until April 2012. There are many FRISAs which offer above 3%.

ET1976

Baldur wrote: »

There are many FRISAs which offer above 3%.

how do you find them?

rb10

ET1976 wrote: »

how do you find them?

This post.

The_Enforcer

I agree that Baldur and Lokolo did the right thing by fixing their ISAs at the point where interest rates first started to fall, thereby keeping them at the inflated level. I'd have done the same, had my money not been tied up in the Icesave debacle.

I'd be interested to know what the equivalent fixed savings account options were around that time (I can't remember as I only had enough spare to fund an ISA at that time), though, to provide a more relevant comparison?

As an aside, I'd certainly be wary about long-term fixing now, as rates are likely to rise from next year onwards and the examples above show that much better returns are possible on ISAs/savings than are offered by the current crop of fixed rate deals.