Isa - fixed or variable, comments please

spikyone

low_spen wrote: »

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.

:eek: Yikes, I have no idea how you concluded that!

Best instant access: Santander Flexible ISA, pays 3.3% or 3.5% if you have a qualifying account. This tracks base rate; base rates are likely to rise (IMO this is almost a certainty), so the rate is likely to improve.

Best 1yr fix: Bank of Cyprus, pays 3.3%, doesn't track base rate.

So by fixing for a year there's no benefit in interest rates and in fact you will lose out over the year if/when base rates rise. Additionally there's no UK govt protection for your money. The only benefit this account has is that it allows transfers in; but you can do that with the Halifax at 3.2% instant access and your money will be protected by the UK government (up to £85k), so I'd use the Halifax account if you need to transfer.
Plus if rates go up and a new account offers a great rate for transfers, you won't be able to take advantage if you fix.

Frankly it's not a very good idea, which is why I didn't suggest it to the OP!

Edit:
I've just seen one of your other posts, and even you think base rates will rise by 0.5%! Fixing when rates are low but about to rise is great for mortgages, but crazy for savings...

Thrugelmir

My OH's ISA's are always invested in cash. Every year we opt for a fix rate. For 10/11 we took Halifax's 4.4% - 4 year fix.

We do this on the basis that every year we have at least one ISA maturing, and can judge at the time whether we fix long or short on rolling over the investment.

Its worth remembering that the interest can withdrawn from ISA's while leaving the capital intact. Something we intend doing once we retire.

(PS My ISA is allocated to S&S).

cagneyfan

spikyone wrote: »

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

Thanks for taking the time to reply. Honestly, as soon as I hear financial jargon I just go into panic mode. And then when the abbreviations come out I need a brown bag to breath into!!

I didn't even realise what IMO meant! It took me ages to figure out!
I shouldn't really let people know just how stupid I am - but then they'd probably figured it out long ago!! Thanks again.

tillycat123

Birmingham Midshires fixed 5% for 5 years for me this year.

whu

spikyone wrote: »

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.

I agree with that analysis

kidmugsy

If you've got the necessary £5340 consider the Coventry BS fixed rate 5 year ISA account paying 5%. If interest rates shoot up you could then transfer the money elsewhere with a penalty of only 120 days interest. Seems a good deal to me.

kevin52

I always fix for one or two years. It avoids the risk when banks drop their best buy rates. However Nationwide 3 years ISA at 4.2% was too tempting.

Thrugelmir

kidmugsy wrote: »

If you've got the necessary £5340 consider the Coventry BS fixed rate 5 year ISA account paying 5%. If interest rates shoot up you could then transfer the money elsewhere with a penalty of only 120 days interest. Seems a good deal to me.

Good rate of interest. As you'd need BOE base to exceed that in order to earn at a comparable level on an instant access account.