Isa - fixed or variable, comments please

cagneyfan

Hi,

I'm just interested in what people out there think. I want to open a cash ISA but don't know if it's better to opt for fixed or variable.

I don't intend on taking out the money and will put the full amount in from the start.

What's the better option - fixed or variable please

Lokolo

Variable means you will have to keep an eye on the rate and move if it goes down too much.

Fixed means you don't need to keep an eye out, but most don't allow access, so if you do need it, even in an emergency, you won't be able to use it.

cagneyfan

Lokolo wrote: »

Variable means you will have to keep an eye on the rate and move if it goes down too much.

Fixed means you don't need to keep an eye out, but most don't allow access, so if you do need it, even in an emergency, you won't be able to use it.

No, I won't need it. I don't particularly want to keep a check on it (unless of course it's worth doing so). What I'm saying is, Would there be much of a loss if I opted for a fixed rate and just left it at that? Are variable likely to suddenly shoot through the roof!?

Lokolo

I don't have a crystal ball, sorry.

KonkyWonky

cagneyfan wrote: »

No, I won't need it. I don't particularly want to keep a check on it (unless of course it's worth doing so). What I'm saying is, Would there be much of a loss if I opted for a fixed rate and just left it at that? Are variable likely to suddenly shoot through the roof!?

No one can guarantee what the market is going to do.

Most experts seem to be of the thinking that interest rates will rise sooner rather than later.

Even if rates do increase there is no guarantee the banks will pass it on to savers immediately (unless your account has a caveat).

Personally I put my money into a variable rate as I am expecting rates to increase within the next 12 months and my saving accounts all track the BoE base rate.

The rates on fixed products are pretty poor ATM, not worth fixing for an extra 0.2-0.5% IMO. Lets face it it is pretty unlikely that rates will decrease.

cagneyfan

Lokolo wrote: »

I don't have a crystal ball, sorry.

I know! Sorry I'm useless at getting my point over. What I'm saying is - of all the isa on show is there much difference in rates. I note that a lot of the variables are 3.3% etc and the fixed seem to be around the 3%.

So has anyone found any well over 3% at fixed rate.

Sorry to be so dense!

spikyone

There is a risk with fixed rate ISAs. Currently, the best paying instant access ISA tracks BoE base rate, so if that goes up, so will your interest. Although base rates are still being held at 0.5% it seems highly likely that rates will rise soon given the high inflation levels, and the European Central Bank's increase.

You can only beat the top-paying Santander instant access with a 2-year fix, and I would say (my own opinion of course) that at 3.7%, you're more likely to lose out over the 2 years. I would expect rates to rise by 0.5% by the end of this year, which would put the instant access account at 3.8% (4.0% if you're already a customer), and you'd still have to suffer an additional year at 3.7% with the potential for more rises next year.
(Note the fix is also with Santander, so if you really don't like them my advice still applies as both types reduce in interest. The next best base-rate tracker is Barclays...)

The only plus with the 2yr fixed-rate account is that it accepts transfers in. If you have a large amount of cash in previous years' ISAs, fixing looks better - the top paying instant access account that accepts transfers doesn't track base rate so you'll beat it for at least one year.
I certainly wouldn't fix for more than 2 years in any case, as base rates can only go one way.

spikyone

cagneyfan wrote: »

I don't intend on taking out the money and will put the full amount in from the start.

Re-reading this, it looks as though you're not transferring in, in which case I agree with KonkyWonky - you're unlikely to benefit from an extra 0.2-0.4% for very long at all. Base rates would go up by 0.25% minimum, so the first increase will wipe out your advantage over a tracker, and further increases will put you on a losing horse (well, it is Grand National day tomorrow )

cagneyfan

spikyone wrote: »

Re-reading this, it looks as though you're not transferring in, in which case I agree with KonkyWonky - you're unlikely to benefit from an extra 0.2-0.4% for very long at all. Base rates would go up by 0.25% minimum, so the first increase will wipe out your advantage over a tracker, and further increases will put you on a losing horse (well, it is Grand National day tomorrow )

Hi again, I'm sorry but anything financial just sounds like a foreign language to me. Base rates etc just get me totally confused.

Are you saying that a variable rate would be better?

spikyone

Sorry!

IMO an instant access account that tracks base rate (the Bank of England's interest rate) is better than a fix at the moment, because I expect the base rate to rise, and fairly soon.

I'll try to explain simply! The difference in interest between the two top-paying accounts at the moment is:

Santander Flexible ISA (instant access) - 3.3% (or 3.5% if you're an existing customer)
Santander 2yr fixed rate - 3.7%

The Flexible ISA rate will go up by the same amount as base rate. If base rate goes up 0.25%, the flexible ISA will be paying 3.55% (or 3.75% for existing customers). So when that happens, your rate will be nearly as good as (or better than) the 2yr fix. If base rate went up by 0.5%, your rate is better than the 2yr fix.
My expectation is that rates will go up by 0.5% by the end of the year, so you'd gain for a maximum of 7 months, then lose for the remaining 17 of your fixed period.

Just remember that the instant access Flexible ISA has a one-year bonus so you'd need to transfer it in a year's time

low_spen

I have recently come to the conclusion that it is better to simply go for a fixed rate for ONE year then see how the wind lies.