Fixed Rate ISA Conundrum

ffacoffipawb

Current ISA: LLoyds TSB 2.90% fixed until November 2012

Considering transfer to Birmingham Midshires 5% 5 year fixed rate.

160 day interest penalty on Lloyds ISA, balance is just under £67k (including an old TESSA).

Would you switch or not?

ses6jwg

Personally I would not put anything in a fixed rate product at the moment but that is because my personal belief is that interest rates will rise in the next 12 months

ffacoffipawb

ses6jwg wrote: »

Personally I would not put anything in a fixed rate product at the moment but that is because my personal belief is that interest rates will rise in the next 12 months

I'm not too sure - the economy is in a bad way and any increase will take us back into a recession / depression.

The 5% rate looks very good compared to what else is available. You may get more in 2-3 years but you are getting a premium for the first couple of years.

Really tempted to go for the 5% ....

smokey_dave

I would not go further than a 1 year fixed isa at the moment.

Why not get your interest paid monthly and live for today.

opinions4u

smokey_dave wrote: »

Why not get your interest paid monthly and live for today.

If you don't need the interest, surely it makes sense to keep it within the tax free shelter of the ISA.

Withdrawing it means it can't be replaced.

ffacoffipawb

smokey_dave wrote: »

I would not go further than a 1 year fixed isa at the moment.

Why not get your interest paid monthly and live for today.

All my ISA money stays in my ISA. That's why the balance is so good.

kidmugsy

Why must it be either/or? You could, for instance (i) transfer £10k to BM, (ii) withdraw £15k and put it ito an ns&i ILSC, (iii) transfer another £10k out to a higher-paying ISA in March 2012, and (iv) take stock with the remaining £32k on maturity.

smokey_dave

You can keep everything in your tax free isa and get the interest paid to you monthly instead of at the end of twelve months.

ffacoffipawb

kidmugsy wrote: »

Why must it be either/or? You could, for instance (i) transfer £10k to BM, (ii) withdraw £15k and put it ito an ns&i ILSC, (iii) transfer another £10k out to a higher-paying ISA in March 2012, and (iv) take stock with the remaining £32k on maturity.

I've already moved £15k from Lloyds Vantage to the NS&I I-L issue.

I have also gone for the BM 5% 5 year ISA - I posted the form today after much umming and arring! Interest to be added to the account.

Allowing for the 160 day penalty on Lloyds, I will be in profit by Xmas.

5% is a good 5 year rate for risk free (inflation excepted) cash - look how much 5 year gilts are yielding - the best part of naff all really.

I also have the previous lot of NS&I 3 year inflation from Nov 2008 - one to renew in 4 months time.

kidmugsy

I am inceasingly tempted by the idea of "laddering" fixed term ISAs. So, every three months or six months, say, transfer a bit more cash to a 5-year ISA like the current one from BM. Except when the new tax year starts when you may find a slightly superior fixed rate one like the current offer from Coventry BS (better early-withdrawal terms than BM's, but won't accept transfers). This would end up being much like a set of notice accounts but probably paying much better interest. I only wish I'd thought of it a few years ago when interest rates on 5 year accounts were (I assume) higher.

bigfreddiel

ses6jwg wrote: »

Personally I would not put anything in a fixed rate product at the moment but that is because my personal belief is that interest rates will rise in the next 12 months

are you having a laugh - interest rates aren't going anywhere anytime soon.

also have a go at working out what interest rate you woud need to make up the loss of interest in the 1st year for example

5yr isa at 5% on £5340 - in year 5 you will have £6815 approx

so if you think its best to wait then say you take 3% isa for one year what rate will you need for the remaining 4 years to end up with £6815?

answers on a postcard


okay here it is then -you'll need 5.5% (approx) for the remaining 4 years

give me 5% for 5 years any day of the week and of course just ladder your savings -next year i'm going for a 4yr at 5% the the following a 3 yr at 5% , so when 2016 arrives i should have £30,982 approx by then inflation will be 2% and a 5yr isa will be 7 or 8% - fantastic as tommy boyd use to say.

fj