Best fixed ISA rate?

SnowMan

Welcome to the forum sw-blue.

It looks like a fairly good account for anyone looking to go for a longer term fixed rate ISA.

Allowing for the withdrawal/transfer penalty the equivalent returns for this ISA over 1,2,3,4 and 5 years relative to the best fixed rate ISAs shown in brackets for these periods (I've only looked quickly so may have missed a better rate) are

1 year: 2.2% (3.25%)
2 year: 3.3% (3.9%)
3 years: 3.7% (4.2%)
4 years: 3.9% (4.4%)
5 years: 4.35% (4.25%)

So it isn't the best rate at any term apart from possibly the full term.

But for someone who wants to go for a 5 year fixed rate ISA it looks a good account because the 5 year return is good and their are good options to get out early without any great loss after about 2 years.

It is worth saying you can get 4.65% in a 5 year fixed rate non ISA so this account looks less attractive in that context, and the 5 year ISA rate only looks good because of an absence of good 5 year ISA fixes at the moment.

Gromitt

When I did my calculations, it worked out that if you withdrew before the 4th year, you would get a better return from the Halifax 3.7% 2 year ISA deal due to the 180 days loss of interest on the 5 year deal.

The 3.9% offer from Natwest works out worse than the Halifax 3.7% offer, as your cash only earns SVR for the first month.

Of course, the Halifax 3.7% offer has since ended. BM or PO is probably the closest now (3.6% I think?)

VT82

Also, tying your money up for 5 years is a big commitment. And if you are going to do that, you might want to wait for the ISA season to start.

Accepting 4.35% for 5 years in February will not look so smart if someone offers 4.9% in April. The 'only six months' interest' penalty will be scant consolation in that scenario.

sw-blue

Thanks for the last few posts, pointing out good alternatives. This is more of what I anticipated but I obviously came over the wrong way. Apologies. I fully accept the points made above which shows that whilst the deal I spotted is good it is not for everyone and it carries it's own risks. Many thanks and hopefully I'll learn how to use the site better for this. Also, I will look for existing threads to post on if more suitable.

begbeer

My 3.5% two year fixed rate isa with bm just matured and they offered me 3.8% for two years, or 4.25% for 5 went for the 2 year fixed as seemed the best just in case things improve this is the second time they have upped the interest rate on maturity so hoping in 2014 will happen again

StevieJ

VT82 wrote: »

Also, tying your money up for 5 years is a big commitment. And if you are going to do that, you might want to wait for the ISA season to start.

Accepting 4.35% for 5 years in February will not look so smart if someone offers 4.9% in April. The 'only six months' interest' penalty will be scant consolation in that scenario.

You will be lucky, CPI could be down below 3.5% (and falling) by then, why do you think the Halifax are cutting their rates?

VT82

The ISA market is illiquid outside of the ISA season. Hence lower rates.

There is no reason why banks are paying 30bps less for 5 year ISAs than for 5 year non-ISAs. The only reason is because of the shallowness of the market outside of the ISA season.

Come March, every bank will want a piece of the ISA pie. Some will go for instant access, some will go for fixed. At this point, rates will at least catch up with non-ISA rates, and have in the past exceeded them. So the 4.35% should at least become 4.65%. It should in fact go higher than non-ISA rates, as banks are now self-assessing on how much liquidity they need to hold against savings balances, and ISAs are considered generally stickier, hence they can hold less liquidity against them, hence they can offer a higher rate and for it to still work out the same price for them.

Finally, although swap rates are going down, there is a huge amount of refinancing to be done by the banks in 2012, not least because huge money market issuances supported by the Government's 'Credit Guarantee Scheme' is maturing. This demand for retail savings will further drive up rates.

StevieJ

Ok I will bookmark and refer this back in April.

sw-blue

smcqis wrote: »

If its best on the moneysavingexpert why did you ever start a thread. To sign up up to a 5 year fix at approx 1% better interest than a non fixed account then you would need to be mad, especially with limited withdrawals

Sorry guys, I've been contrite and accepted my own shortfalls on here and I will try to do better.

BUT, smcqis, you've totally missed the point. Read my post again.

Just_landed

sw-blue wrote: »

Sorry guys, I've been contrite and accepted my own shortfalls on here and I will try to do better.

BUT, smcqis, you've totally missed the point. Read my post again.

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Why don't you take a look here the first post, Link :-

https://forums.moneysavingexpert.com/discussion/401374