ISA switching advice please?

GlynG

My ISA with Northern Rock has just run out, it was a 1 year fix with (I think) around 6% interest.

Obviously I couldn’t expect such a rate in the current climate (should really have locked in for longer) but what would be the best ISA to transfer the money to currently do people think?

I guess I’m not sure what length of time to lock it in for – if I do go back to uni in 2-3 years I’d need to spend it all then, but have no need to touch any till then. Would I be best to lock in to the best 1 year account or possibly even longer? Will rates be likely better or worse in a year or is it impossible to predict really?

slinga

In general the longer you lock the higher the rate.
This is not always so.

But do a calculation to see what difference in interest you will receive with say a 4% rate and a 5% rate over two years. And then do another calc with 4% for the first year, 5.5% for the second year and 4.5% for two years.

The results, depending on your capital may direct you to a strategy or seeing the results you may think it's not worth trying to outguess the market and just plump straight away for the best 2 year rate.

GlynG

I guess I was hoping for some idea what the rates may look like in a year or two though to know how long might be best to lock in for. I have a little over 7k, and I would like to build up my savings to a higher amount overall, but with little idea of what the future rates might be like I wouldn't know what to calculate.

It would be all well and good for me to seek out the best rate currently available by going to a 2-3 year lock in for say 4%, but if in a year or two the rate has gone up to perhaps 6-10%+ then I would be the worse for locking in longer.

I'm not an expert or that up-to-date on things but I did read a number of articles a while back suggesting very significant inflation was a distinct possibility in coming times (due to financial mis-management and quantitative easing by our government and the floundering of our economy and international currency worth) and if this did happen being locked into a low rate for a long period like two years could prove a very bad idea.

Lokolo

GlynG wrote: »

I guess I was hoping for some idea what the rates may look like in a year or two though to know how long might be best to lock in for. I have a little over 7k, and I would like to build up my savings to a higher amount overall, but with little idea of what the future rates might be like I wouldn't know what to calculate.

It would be all well and good for me to seek out the best rate currently available by going to a 2-3 year lock in for say 4%, but if in a year or two the rate has gone up to perhaps 6-10%+ then I would be the worse for locking in longer.

I'm not an expert or that up-to-date on things but I did read a number of articles a while back suggesting very significant inflation was a distinct possibility in coming times (due to financial mis-management and quantitative easing by our government and the floundering of our economy and international currency worth) and if this did happen being locked into a low rate for a long period like two years could prove a very bad idea.

Do you have a crystal ball? None of us do!

Some people think we are going to get hyper inflation and savings rate will sky rocket when this happen to calm it down. Some people think it will stay like this for the next few years.

Who knows! Dr Who might, but we don't.

However, most people have the view that rates can't get any lower, so there is no point in locking for long periods, I have an ISA maturing in Janury and I am not fixing for even a year, I will continue to switch when the rate goes bad.

GlynG

Lokolo wrote: »

Who knows! Dr Who might, but we don't.

Well I do live in Cardiff, so I have a greater than average chance of seeing him to ask, but I think he might be busy with the normal saving the universe stuff anyway...

I was wondering whether there might be an informed consensus from those more knowledgeable in such areas than me, but I guess it is fairly and a gamble. I think I will go with the best current rate for the moment and switch again in next April's tax year should a much better one come up.

I'll look into switching to First Direct 3% ISA then, unless anyone has a better one to suggest in the near future? I should really get it sorted ASAP as the fixed rate with Nortern Rock has just finished so I'm presumably on crappy interest from them now instead.

One last thing, since my fixed rate period has ran out I assume they will reduce the interest down, but that won't actually constitute being a new account with them that would prevent me from opening a proper new one this tax year to move the money to?

alastair_h

GlynG wrote: »

One last thing, since my fixed rate period has ran out I assume they will reduce the interest down, but that won't actually constitute being a new account with them that would prevent me from opening a proper new one this tax year to move the money to?

No it's effectively a previous years contribution. Even if it was this years contribution you could still transfer it too another ISA provider to get a better rate (as long as the terms allow this), transferring doesn't count as opening 2 ISA's in a financial year.

Good luck with the Doctor

GlynG

Ah, I never knew that! I assumed you could only open a single ISA in a year, it's more flexible than I realised if you can transfer multiple times in a year.

If I open the best currently available ISA and both transfer in last year's money and pay in some money too can this still be transferred this tax year if I wanted to say? Or would it have to wait till next tax year as there's new money there too?

Lokolo

GlynG wrote: »

Ah, I never knew that! I assumed you could only open a single ISA in a year, it's more flexible than I realised if you can transfer multiple times in a year.

If I open the best currently available ISA and both transfer in last year's money and pay in some money too can this still be transferred this tax year if I wanted to say? Or would it have to wait till next tax year as there's new money there too?

You can top up now then transfer, or transfer then top up. Some ISAs do not allow additional deposits, some do, I think FD does.

alastair_h

GlynG wrote: »

If I open the best currently available ISA and both transfer in last year's money and pay in some money too can this still be transferred this tax year if I wanted to say?

Yes as long as the terms of the ISA allow this (i.e. most fixed rate ISA's don't allow you to add further funds for example or transfer within a certain time period - fixed for 1, 2, 3 years etc).

GlynG wrote: »

Or would it have to wait till next tax year as there's new money there too?

No you could still do above and then open another ISA from 6th April 2010 or pull them all together into 1 pot or have them separate - the choice is yours.