Cash ISAs: The Best Currently Available List

A._Badger

Forgive a 'numerically challenged' question, samizdat, but I was very impressed with your argument and am now considering shifting my c. £45,000 accumulated cash ISA out a high st. bank and into the Clydesdale.

Given that the returns from M&S can never exceed 4% and assuming (as I am) that interest rates, if they are going to move sharply upwards at some point, are unlikely to do so within two years, then even given the larger sum involved, the Clydesdale remains the better bet?

Am I missing something here? It seems an excellent proposition.

Thank you, again, for the research.

Edit - to clarify, I meant even after 24 months.

samizdat

A._Badger wrote: »

I [...am...]considering shifting my c. £45,000 accumulated cash ISA out a high st. bank and into the Clydesdale.

Given that the returns from M&S can never exceed 4% and assuming (as I am) that interest rates, if they are going to move sharply upwards at some point, are unlikely to do so within two years, then even given the larger sum involved, the Clydesdale remains the better bet?

Well, after 2 years on an initial deposit of £45,000, I calculate that the M&S 3-year fix returns 3.89%, versus 3.76% for the Clydesdale 5-year fix. At 3 years, it is 4% obviously for M&S (it is at maturity) and 4.17% for Clydesdale. I think the cross-over, i.e. the point at which Clydesdale overtakes M&S, occurs shortly after 28 months. M&S is obviously way ahead in the earlier periods because of the large initial deposit and flat-rate withdrawal penalty.

What you need to consider is not merely where the Base Rate will be over the next few years but also where the "spot curve", i.e. the available schedule of fixed rates over different terms, will be during this period and over your investment horizon.

Consider the position after 2 years, for example. If at that point you can find a better rate than 5%, then you might feel you ought to have been invested in the M&S product, because you would then have earned a better rate than you would have earned if switching from the Clydesdale and you are able to switch to a rate higher than the Clydesdale. The problem is, if you were with the Clydesdale, you wouldn't necessarily incur the switching cost - you could just stay in it until maturity. At the 2-year point, you would need to switch into a product offering you 5.74% for 3 years in order to match the outcome you would obtain from just staying in the Clydesdale until maturity.

What if there were a 5-year fix at 5.6% on offer in 2 years time? You would be a bit behind the Clydesdale 5 years from now but maybe rates would be coming down again so that, when the Clydesdale deposit matures, you find you can no longer obtain more than 4.5%, for example?

It is a complex decision! I think a lot depends on how likely you are to need access to the money. If there is a chance (that you deem significant) that you could need it within the next couple of years, OR that one day you might prefer to invest the money in some hot stock tip given to you by your next door neighbour over the garden fence, I think the M&S product is very attractive for a deposit of £45,000. Provided you invest for at least a couple of months, it can't really be beaten, to my knowledge, over a time horizon of the next two and a half years.

On the other hand, if you are exceedingly likely to have this money on deposit in an ISA with one institution or another for the next 5 years, then you can make your own mind up about the likely path of future interest rates. My hunch - which isn't worth very much - is that we will be stuck in a low interest rate environment (say, Base Rate below 5%) for the next three to five years - fiscal restraint, loose money, if you like - so I would wager the Clydesdale might end up in front.

Look at it this way - either product will probably be pretty good for you so try not to worry too much! Sorry I can't be more definitive.

tobed

Maybe a stupid question:

I am currentyl holding an e-Cash ISA with 1st Direct. Would they allow me to open another one with the new promotional rates?

If so, can I transfer funds from the old to the new one?

Many thanks

samizdat

tobed wrote: »

Maybe a stupid question:

I am currentyl holding an e-Cash ISA with 1st Direct. Would they allow me to open another one with the new promotional rates?

Yes.

tobed wrote: »

If so, can I transfer funds from the old to the new one?

No. A nuisance, isn't it? Of those that accept transfers from 1st Direct, Nationwide has the best rate at 2.75% on smallish balances (i.e. below 9000), but you need to open a card-holding account. Otherwise I think it is Birmingham Midshires or Cheltenham & Gloucester, at least for variable rate ISAs, although see my recent posts for possible alternatives in the fixed rate market.

A._Badger

Don't worry about not being definitive, samizdat. In this business, it's the people who claim they are that you have to be wary of!

Thanks very much for your helpful advice.

stagey_2

A._Badger wrote: »

Don't worry about not being definitive, samizdat. In this business, it's the people who claim they are that you have to be wary of!

Thanks very much for your helpful advice.

Badger - I looked and OK will go with it then - don't have as much as you to invest but who knows where it might lead!

A._Badger

Rats! It seems I'll incur a 90 day loss of interest on my current cash ISA (a 1 yr fixed) if I move before 20th May. I'll just have to hope the M&S deal lasts that long.

tubmog

Just to check , with the M&S 3 year fix at 4% ,can you transfer out into another ISA before maturity ?

The t&c's say they will make payment by cheque or into your bank \building society account ... I presume current account .... will the money lose it's ISA wrapper ?

gwapenut

A._Badger wrote: »

Rats! It seems I'll incur a 90 day loss of interest on my current cash ISA (a 1 yr fixed) if I move before 20th May. I'll just have to hope the M&S deal lasts that long.

I think you can apply for M&S now and say you wish to honour a 70 day notice period - there is a box on their transfer application form for this.

http://money.marksandspencer.com/save-invest/cash-isa/overview/
has the transfer form linked on the right hand side of the page.

From what I understand you can apply now, and give notice. M&S will lock you in to that rate so long as they start processing your application, ie giving 70 days notice ratehr than actually effecting the transfer, before their ISA deal is withdrawn.

gwapenut

tubmog wrote: »

Just to check , with the M&S 3 year fix at 4% ,can you transfer out into another ISA before maturity ?

The t&c's say they will make payment by cheque or into your bank \building society account ... I presume current account .... will the money lose it's ISA wrapper ?

Yes you can transfer. I got this in writing from them:-
Thank you for your email.

I can confirm that we do accept transfers in from other providers and this does not affect your current subscription allowance. You are also able to transfer a Fixed Rate Cash ISA to another provider at any time. Please note that if the transfer is to be made before the maturity date of the holding, a standard penalty will apply. For the 3 Year Fixed Rate Cash ISA, this charge is £100. Once the holding has matured, the funds can be moved with no charge.