isa accounts

saver_1_2

My bank wrote to me informing that my one year isa is coming to an end and they recommend i transfer to a 2 year fixed term isa. One problem which i have found with many if not all the banks is that the fixed term one's do not allow you to put money in for the fixed term so I'm tinkering on the fact that i should continue with a yearly one which I'm on now at a rate of around 2% with i THINK an annual bonus of 1.9%.
I like to make deposits every now and then and although i do not make the maximum deposit in the year i still like to do it this way. I'm saving for long term so i never make a withdrawal so is it better financially to sacrifice a fixed rate isa to have one 2 to 3% lower interest than a higher one where you cannot make deposits.
I look at it this way say i have £100 in an instant one and i contribute £100 in a year that's £200 plus 2% interest where as if i have £100 and i cannot contribute for 2 years i will have £100 plus two years interest at whatever the rate is.
Whats your thoughts.Thanks.

alastair_h

saver_1 wrote: »

Whats your thoughts.Thanks.

You could transfer your existing ISA, this 1 year fixed rate one with Metro Bank seems very good at 3.25% - click HERE.

From April 6th you can open another ISA with a different provider, you can usually get slightly better deals for "new money" - click HERE for best buys.

Plenty of options to get the best rates available.

psychic_teabag

You mean fixed-term accounts don't let you add extra money during the year ? You describe your account as a yearly one - perhaps you mean it's an instant-access account with an introductory bonus for the first year ?

2% is not the best rate - you should be able to find an instant-access ISA offering around 3% or more. Annual bonus usually applies to first year only - if you carry on with this ISA you'll probably just get 0.1% ! But if you give us the bank and product name we can check for you.

You are not restricted to a single ISA ever. The rule is that you can only deposit into one per (financial) year. So you can "freeze" your existing ISA money in a fixed-term account and open a new one. But you have to take care that you only pay into one ISA within a financial year.

One option is to open an instant-access ISA at the start of each financial year, and then either at the end of the year or the start of the next one, transfer it to a fixed-rate ISA. Then you're ready to open a new instant-access account at the start of the next financial year.

Another option is to just build up the money in a non-ISA account through the year and put it into a fixed-term ISA in March. This isn't completely daft if you can find a taxable account that pays more than the untaxed ISA. eg some regular savings accounts do (but many do require disciplined deposits which might not suit you). Currently Monmouth have a flexible saver paying 4% taxable (inc. bonus for a year) that lets you add money as-and-when. Assuming you pay basic-rate tax, that's more than you can get in an instant-access ISA, even after tax.

I think some current accounts also pay a good interest rate on the first £X.

saver_1_2

Thanks guys a lot to ponder over the weekend but i have some pointers now

Mikeyorks

saver_1 wrote: »

Whats your thoughts.Thanks.

I don't think you have the way it works correctly? I assume this is Halifax?

Whatever. You move the maturing ISA to the 2 year fixed rate (3.7%?). You then save any more contributions until after 5/4 at which point you open another variable ISA for your new allowance of £5640.
If you have the lump sum you could open another fix at 3.7% (if still on offer). Assuming - from your post - you don't then you make do with the variable one. That way you're getting 3.7% on the old ISA and 2.6% (current rate) on the variable one as you add subscriptions through the year.

End of the year you 'fix' the variable one and open a new variable? And so on.

pqrdef

saver_1 wrote: »

My bank wrote to me informing that my one year isa is coming to an end and they recommend i transfer to a 2 year fixed term isa.

This is terrible advice, because it leads straight to a notorious trap. If you transfer current-year contributions to an ISA that doesn't accept top-ups, you can't make any more contributions in the tax year, and the rest of your allowance goes to waste.

The bank should get a bollocking from on high for that.

It won't make much difference if your circumstances don't change, but the bank doesn't know they won't, and neither do you.

Unless you're maxing out your annual ISA allowance in one go, the best thing in general is to keep your current year's savings in a flexible account, and only transfer money to a fixed account when it's "old" money.

So first look at transferring your ISA to another instant-access ISA.

But check the conditions on your bonus interest, to make sure you don't lose it by closing the existing account too soon.

saver_1_2

I tend to be leaning to transferring it to another instant access one at the moment.

opinions4u

pqrdef wrote: »

This is terrible advice, because it leads straight to a notorious trap. If you transfer current-year contributions to an ISA that doesn't accept top-ups, you can't make any more contributions in the tax year, and the rest of your allowance goes to waste.

The bank should get a bollocking from on high for that.

There is no evidence that the bank has given that advice at all.

Merely sent a letter saying "your old one's coming to an end, we've got a 3.7% fixed deal, do you want it?"

Perhaps they've only targeted those who have already used this year's cash ISA allowance. Perhaps there's a leaflet that explains the different scenarios. Perhaps the 3.7% account retains the same account number and sort code and allows a funding window of a few days for top ups.

saver_1_2

Sent a letter saying my old one comes to an end June 2012 But not to worry i can get an even better rate with this new two year fixed rate. 2nd Paragraph of letter is get an even better rate fixed for 2 years and goes on to explane about this 2 year deal. Third paragraph. titled don't miss out goes on to explane how good [i feel in the banks eyes] this new fixed rate deal is. Then a second letter all nicely filled in with my details on address sort code account number all ready for me to sign.
If that is not a recommendation i don't know what is.
And no once opened there is no funding window

opinions4u

If that is not a recommendation i don't know what is.

An invitation.

Not a recommendation.

saver_1_2

No word of invitation is mentioned and i would agree no word of recommend is used. However the three paragraphs used to promote the fixed term one with a second letter with a form all filled out for me i would say the bank have recommended this is the best for me.
People who still see banks as looking after the customers interests [ esp older people] May think this is a recommendation rather than an invitation