5-year ISAs: Compound interest or not?

Zanderman

capital0ne wrote: »

No one knows where inflation is going, with oil heading to $100/barrel who knows, but it's summer so heating oil consumtion will be down, but new MOT is going to fail more diesel cars so maybe car sales/repairs will be up .........nothing is certain, so.....

TSB bank is offering 5% after their IT debacle, and it's not just temporary, I have the promise off their web page saved for future reference! Regular savers pay 5% and so on....., so maybe a 5 yr ISA isn't a good idea right now, but it's better than doing nothing.

I'd echo Eskbanker's points already made.

And would add that this is all off-topic - the OP was asking about compound interest on an ISA, they were not asking for advice on whether an ISA is a good idea.

And they may already have maxxed out other higher interest accounts.

The thread is here to answer their query, and that's what we should be doing.

(but I can't resist pointing out that your suggestion a Reg Saver at 5% might be relevant is misleading. Yes they pay 5% but only on the cash that's in there, so an investment of, say, 2500 over 12 months gets what is, in effect, about 2.6% overall. Which is, er, exactly what the OP's ISA offers - but in a much simpler way)

masonic

Another benefit to taking out a 5 year fixed rate ISA vs. a 5 year fixed rate savings account (assuming other higher interest options have been exhausted) is that the ISA must provide for early access (usually subject to an interest penalty), whereas non-ISA fixed rate accounts can prevent early access entirely - and many do.

Joe_Bloggs

Who knows what real world interest rates will be in 1 year let alone five years. Given this do not invest all in! Diversify/stagger your entry into multi year deals.

Inflation can easily eat away any net worth of the alleged investment so I am all out in this scenario.
J_B.

I did watch Dragons Den. I think crowd funding should have a similar show.
J_B.

Silver66

Thanks everyone for your replies, they are all helpful. In this case, I'm opening this ISA only in order to transfer in money from an older ISA that has just matured. I had to put it into a new ISA so that it didn't lose its tax-free status. I agree that the interest rates are so low at the moment that they risk not keeping up with inflation. I'm not sure how I could have avoided this problem. I've never had any stocks and shares accounts, because although they could earn more, I've never wanted to risk losing money.

Actually, since I last wrote, United Bank UK has reduced the interest on their five-year ISA to 2.12%, so today I've opened one with Shawbrook Bank, at 2.3%. I'm a bit annoyed, but I might not have been in time to get the higher rate with UBL, because apparently they lowered the rate on 22nd May (just two days after my original post, and they needed the application form sent by post). Anyway, Shawbrook Bank seems to have better customer service ratings than UBL.

It's been a useful learning experience to post on the forum. Thanks for taking the time to reply.