Will interest rates go up anytime soon? 5 November 2022 at 11:46AM in ISAs & tax-free savings 6 replies 439 views

borderline

I want to move my Isa with Virgin that pays very little.. (0.40%) shall I wait or do you think interest rates won't go up gain?

ForumUser7

Virgin Money are currently offering a 3% variable rate flexible ISA. Perhaps you'd want to move to this in the meantime. Have a look at the ts and cs, maybe it's for you. N.B. You must hold a current account with them

easy_access_cash_isa_exclusive_issue_2

borderline

ForumUser7 said:

Virgin Money are currently offering a 3% variable rate flexible ISA. Perhaps you'd want to move to this in the meantime. Have a look at the ts and cs, maybe it's for you. N.B. You must hold a current account with them

easy_access_cash_isa_exclusive_issue_2

I don't have a current account with them.. I was looking at their 1 year fix 3,85%

savit4l8er

If you have a look over the past month or so, there are many asking the same question. I hindsight, you can say yes in most cases but nobody can predict forward with any certainty.  Have a look over the other threads.

Examples

https://forums.moneysavingexpert.com/discussion/6397672/wait-or-fix#latest

https://forums.moneysavingexpert.com/discussion/6389519/open-isa-or-wait-another-month/p1

https://forums.moneysavingexpert.com/discussion/6395460/following-todays-announcements-grab-a-deal-now-or-wait-until-november/p1

There are more discussions within other threads as well  

Bridlington1

There's very little doubt that interest rates will continue to go up in the current environment. The question is by how much. Whether or not you should fix at the moment is a question many would like to know the answer to and the truth is, no one knows. It fundamentally boils down to whether or not the average interest rate on an easy access ISA over the next 12 months will be greater than the current interest rate on the top paying 1 year fix. At the moment the top 1Y fixed rate ISA pays 3.9%, the top easy access pays 3%. A very rough rule of thumb would be, do you think that this time next year the top easy access ISA will pay more than 4.8%? If the answer is yes you are most probably better off with easy access, if you think the answer is no, you are most probably better off opting for a fix.

One thing's for certain though, at 0.4%, your current ISA should most certainly be switched as there are dozens of easy access ISAs paying significantly more. You can switch an ISA very easily so if rates do go up elsewhere you can always switch again. 

Oasis1

Bridlington1 said:

There's very little doubt that interest rates will continue to go up in the current environment. The question is by how much. Whether or not you should fix at the moment is a question many would like to know the answer to and the truth is, no one knows. It fundamentally boils down to whether or not the average interest rate on an easy access ISA over the next 12 months will be greater than the current interest rate on the top paying 1 year fix. At the moment the top 1Y fixed rate ISA pays 3.9%, the top easy access pays 3%. A very rough rule of thumb would be, do you think that this time next year the top easy access ISA will pay more than 4.8%? If the answer is yes you are most probably better off with easy access, if you think the answer is no, you are most probably better off opting for a fix.

One thing's for certain though, at 0.4%, your current ISA should most certainly be switched as there are dozens of easy access ISAs paying significantly more. You can switch an ISA very easily so if rates do go up elsewhere you can always switch again. 

Why 4.8%?

Bridlington1

Oasis1 said:

Bridlington1 said:

There's very little doubt that interest rates will continue to go up in the current environment. The question is by how much. Whether or not you should fix at the moment is a question many would like to know the answer to and the truth is, no one knows. It fundamentally boils down to whether or not the average interest rate on an easy access ISA over the next 12 months will be greater than the current interest rate on the top paying 1 year fix. At the moment the top 1Y fixed rate ISA pays 3.9%, the top easy access pays 3%. A very rough rule of thumb would be, do you think that this time next year the top easy access ISA will pay more than 4.8%? If the answer is yes you are most probably better off with easy access, if you think the answer is no, you are most probably better off opting for a fix.

One thing's for certain though, at 0.4%, your current ISA should most certainly be switched as there are dozens of easy access ISAs paying significantly more. You can switch an ISA very easily so if rates do go up elsewhere you can always switch again. 

Why 4.8%?

Top fixed rate pays 3.9%, top easy access currently pays 3%. The difference between them is 0.9%. If the top easy access rates average the current top 1 year fix over the next 12 months, you would expect to see the top easy access ISA paying 3.9% in 6 months time (an increase of 0.9%), and then rise another 0.9% over the 6 months after that. Thus the top easy access ISA would need to pay 1.8% more in 12 months time to match the current top 1Y fix. 3% + 1.8% yields 4.8%.

Or to put it another way:
(3% + future easy access rate)/2 = 3.9% ⇒ future easy access rate = 4.8%