Lloyds cash ISA 2 year fixed, is this worth it?

dllive

Hi,
Im looking at depositing into a cash ISA. Lloyds 1 year ISA pays 2.7%, but their 2 year fixed ISA pays 3.6%. The penalty for an early withdrwael means the loss of 160 days interest on the amount withdrawn.
I dont think Ill need access to that money within 2 years, but if I do, am I right in thinking it would still be worth taking the 2 year fixed?
Thanks

green_machine_2

If you deposit your entire £5,340 now into the Lloyds 1 year ISA, you will gain £133.51 in interest for the year [(£5,340 * 0.027) / 365 * 338].

If you desposit your entire £5,340 now into the Lloyds 2 year ISA, you will gain interest over the two year period of £384.48 [(£5,340 * 0.036) * 2 years] or £192.24 per year.

If you withdraw the entire amount of money early (£5,340) you will lose 160 days of interest which is equal to £84.27 (£192.24/365 * 160) making your total interest over the two years £300.21 (£384.48 minus £84.27) or £150.11 per year.

So even if you withdraw the entire £5,340 early from the Lloyds 2 year ISA you will still make more interest per year than in the Lloyds 1 year ISA.

dllive

wow - that was an in-depth reply. I think that comprehensively answered my question - thanks Green Machine!

green_machine_2

No problem.

dtsazza

Unless there's some particular reason why you have to go with Lloyds, I wouldn't even consider the 1-year fix.

Barclays and Santander's instant-access ISAs pay 3.25% and 3.3% respectively, and are guaranteed to stay the respective amounts above the base rate for a year. That is, they ahve the benefits of a one-year fix (in the sense that the rates can't go down), but with the plus side that they will track base rates upwards (if/when that happens), and penalty-free access.

Both completely blow a fixed 2.7% out of the water; and if for some reason you don't like either company (they both had pretty poor customer satisfaction results recently), there are loads of instant-access ISAs paying 3% and greater, many from companies with great records of service.


For a similar reason I'd be wary of a two-year fix at 3.6%; if base rates rise by 0.5% the both the Barclays and Santander instant-access ISAs will be beating this rate. (In fact, if you have a Santander current account you'd get 3.5% right now from their ISA. Fixing for two years for an extra 0.1% interest when rates can only go up would be quite unwise in this situation.)

Saints2011

Not fixed its variable at 2.65% with a 18month bonus of 1.65% + 1.00% variable rate

+ can be converted at any time.