1, 2, 3 or 5 year fixed rate Cash ISA - What to go for

13

Comments

  • Albermarle
    Albermarle Posts: 22,097 Forumite
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    I've maxed out my workplace pension contribution & don't want to risk in S & S ISA as I'm risk averse.

    Presumably your pension is invested in the financial markets? Normally being too risk averse is a risk in itself.

    Regarding fixes. It seems sensible to fix for more than a year ( in my opinion) but fixing for 5 years or more is a bit of a shot in the dark ( in my opinion) 

  • So what are we all thinking re fixes...1, 2 or 3 years?

    Since Shawbrook cut their rates on the day my maturity instructions were received (at their new lower rate...grrrrrrr!) I think I'm just going put my 80K into their EA Cash ISA at maturity...then split from there once it's showing. I believe I can't set up transfers to alt provider(s) yet as Shawbrook have said I'll get a new account number for their EA Cash ISA once matured, so I guess I'll need that to give to the alt provider(s)?

    I'm currently thinking of either roughly splitting it into 2 & 3 year fixes with 40K in each or 1, 2 & 3 year fixes with about 26K in each

    I've maxed out my workplace pension contribution & don't want to risk in S & S ISA as I'm risk averse.
    Up to now I've transferred previous years cash ISA funds (c.15K) into one 1 year fixed ISA, one 18 month fixed ISA, one 2 year fixed ISA and one 3 year fixed ISA, placing a roughly equal amount of money into each fix. I would very much have preferred to put more money into the 2 year and 3 year fixes than the others had I had more available funds.

    I'm very sorry that the timing of Shawbrook's rate cutting has affected your maturity options in the way that it clearly has! I think in the circumstances that the plan you've outlined above is exactly the right one because Shawbrook have indicated that you will get a new account number for the Easy Access Cash ISA in which you will place the 80K at maturity, and you will need to give that account number to each new provider that you decide to fix with.

    If I had 80K available to distribute into new ISA fixes, I would probably either (a) put 20K into a 1 year fix, 30K into a 2 year fix and 30K into a 3 year fix or (b) put 10K into a 1 year fix, 10K into an 18 month fix, 30K into a 2 year fix and 30K into a 3 year fix. I would only choose option (b) however if there was an 18 month fix available with an interest rate no lower than 5.60% because otherwise it is clearly better value to use 1 and 2 year fixes instead. With both options (a) and (b) I'm deliberately putting 10K more into the 2 year and 3 year fixes because of the strong possibility of interest rates being noticeably lower in 2 to 3 years time. The 20K in either the 1 year fix alone or shared between the 1 year fix and the 18 month fix is like a bit of insurance just in case unexpected events happen and interest rates actually start to rise again in a couple of years or so.

    I hope this is helpful and very best wishes whatever you decide to do in the end.
  • savit4l8er
    savit4l8er Posts: 293 Forumite
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    @cricidmuslibale

    Another helpful post. 
    Yeah, cheers but nah, I will stick with yes,  thank you and no. 

    Thank you. 
  • Rich2808
    Rich2808 Posts: 1,332 Forumite
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    One obvious option is to use a split/portfolio provider like Paragon, Nationwide, NatWest, Kent Reliance etc and invest in a range of fixed rate isas - as they allow you to open multiple cash isas in year and move funds internally between them (subject to the terms of each account).

    https://www.thisismoney.co.uk/money/saving/article-6903495/What-portfolio-Isa-tax-wrapper-allows-savers-open-multiple-cash-accounts.html

    Paragon for example has a range of top paying fixed rate ISAs paying 5% to 5.55%. You could put £4,000 in a one year, £4,000 in an 18 month, £4,000 in a 2 year, £4,000 in a 3 year and £4,000 in a 5 year - to use up your £20k allowance as an illustration. I can recommend them - but there are other portfolio isa providers.

    https://www.paragonbank.co.uk/savings/savings-accounts
  • Good morning 

    My understanding (from what I’ve read in recent financial news) is that is now likely, albeit not certain, that the Bank of England base rate, currently 5.25%, is either at or very close to its peak, with at most one further 0.25% rise to come, and that rise will only occur if core inflation in particular starts to rise again. Ironically inflation as measured by the Retail Price Index did actually rise slightly to 9.1% in the latest figures (for August) and CPI inflation fell only very slightly to 6.7%, which is why the majority of financial experts, and very probably the majority of savings providers, expected the Bank of England to raise the base rate by 0.25% last Thursday rather than keep it unchanged!

    As for over the next five years, from what I’ve read it appears that the B of E base rate is most likely to remain at 5.25% for the next few months before being reduced gradually from mid 2024 onwards and then stabilising somewhere between 2.5% to 3.5% by the end of 2025. Beyond that it is very hard at this stage to be sure what will happen; even the gradual decline I’ve just outlined is far from set in stone and a lot will depend on how stable or otherwise the British economy is, plus of course whether there are further global shocks such as the Ukraine war which lead to global energy and food price increases. Interest rates in general are likely to follow the direction of travel of the base rate, as you probably already know.

    With all that in mind, I would naturally prefer to create a personal ladder of fixed rate ISAs lasting from 1 to 5 years, with roughly equal amounts of previous years cash ISA contributions saved into each fix. However at the moment the best interest rate on offer for 4 and 5 year fixed rate ISAs is Zopa’s 5.26%, which is not high enough for me, and more importantly these Zopa fixes don’t allow any incoming transfers. Therefore I’m restricting myself to a ladder of fixed rate ISAs that last from 1 to 3 years; so far I’ve taken out a 1 year 5.85% fix with Virgin Money and an 18 month 5.70% fix with Skipton Building Society. I’m now keen to find suitable 2 and 3 year fixes within the next few weeks at most and maybe within a few days if I sense that interest rates on these medium term fixed ISAs will continue to decline as they have recently.

    I hope all this is helpful. Best wishes whatever you decide to go for!
    Good morning, just seeing if you've committed to any 2 & 3 year fixes yet & if so who did you go with...

    My 80K in Shawbrook matures into their EA Cash ISA this Thursday so I'm still working out the best split...

    Currently thinking 40K into two fixes either 2 & 3 year or two 3 year fixes as I feel rates will be much lower in a year/18 months...

    Also unsure if I'm going to select the interest to be paid away or compounded...
  • Albermarle
    Albermarle Posts: 22,097 Forumite
    First Anniversary First Post Name Dropper
    Currently thinking 40K into two fixes either 2 & 3 year or two 3 year fixes as I feel rates will be much lower in a year/18 months...

    From what I have read the consensus seems to be that Bof E rate will be around this level for at least the next 9 months , probably more like 12. Then maybe a gradual reduction.
    However it could well be that in 12 months time the rates you can fix for 2 or 3 years may well have dropped off a bit, or not....
  • Currently thinking 40K into two fixes either 2 & 3 year or two 3 year fixes as I feel rates will be much lower in a year/18 months...

    From what I have read the consensus seems to be that Bof E rate will be around this level for at least the next 9 months , probably more like 12. Then maybe a gradual reduction.
    However it could well be that in 12 months time the rates you can fix for 2 or 3 years may well have dropped off a bit, or not....
    Might even just keep the whole 80K in the Shawbrook EA Cash ISA until the next BOE base rate decision...Then jump straight onto the longer fixes the same day, if there is no increase in the base rate...
  • You could open some fixed rate ISA's now, if you like the interest rates, and leave them empty until after BOE meeting, as many ISA's have a 30day funding window- just a thought....

    sx
  • Janie2008
    Janie2008 Posts: 263 Forumite
    Name Dropper First Post First Anniversary Combo Breaker
    Currently thinking 40K into two fixes either 2 & 3 year or two 3 year fixes as I feel rates will be much lower in a year/18 months...

    From what I have read the consensus seems to be that Bof E rate will be around this level for at least the next 9 months , probably more like 12. Then maybe a gradual reduction.
    However it could well be that in 12 months time the rates you can fix for 2 or 3 years may well have dropped off a bit, or not....
    Might even just keep the whole 80K in the Shawbrook EA Cash ISA until the next BOE base rate decision...Then jump straight onto the longer fixes the same day, if there is no increase in the base rate...
    Rates seem to be slowly decreasing though. The Nationwide for instance have reduced theirs today. Inflation figures tomorrow. Might be worth seeing how they are.
  • cricidmuslibale
    cricidmuslibale Posts: 602 Forumite
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    edited 17 October 2023 at 10:49PM
    Good morning 

    My understanding (from what I’ve read in recent financial news) is that is now likely, albeit not certain, that the Bank of England base rate, currently 5.25%, is either at or very close to its peak, with at most one further 0.25% rise to come, and that rise will only occur if core inflation in particular starts to rise again. Ironically inflation as measured by the Retail Price Index did actually rise slightly to 9.1% in the latest figures (for August) and CPI inflation fell only very slightly to 6.7%, which is why the majority of financial experts, and very probably the majority of savings providers, expected the Bank of England to raise the base rate by 0.25% last Thursday rather than keep it unchanged!

    As for over the next five years, from what I’ve read it appears that the B of E base rate is most likely to remain at 5.25% for the next few months before being reduced gradually from mid 2024 onwards and then stabilising somewhere between 2.5% to 3.5% by the end of 2025. Beyond that it is very hard at this stage to be sure what will happen; even the gradual decline I’ve just outlined is far from set in stone and a lot will depend on how stable or otherwise the British economy is, plus of course whether there are further global shocks such as the Ukraine war which lead to global energy and food price increases. Interest rates in general are likely to follow the direction of travel of the base rate, as you probably already know.

    With all that in mind, I would naturally prefer to create a personal ladder of fixed rate ISAs lasting from 1 to 5 years, with roughly equal amounts of previous years cash ISA contributions saved into each fix. However at the moment the best interest rate on offer for 4 and 5 year fixed rate ISAs is Zopa’s 5.26%, which is not high enough for me, and more importantly these Zopa fixes don’t allow any incoming transfers. Therefore I’m restricting myself to a ladder of fixed rate ISAs that last from 1 to 3 years; so far I’ve taken out a 1 year 5.85% fix with Virgin Money and an 18 month 5.70% fix with Skipton Building Society. I’m now keen to find suitable 2 and 3 year fixes within the next few weeks at most and maybe within a few days if I sense that interest rates on these medium term fixed ISAs will continue to decline as they have recently.

    I hope all this is helpful. Best wishes whatever you decide to go for!
    Good morning, just seeing if you've committed to any 2 & 3 year fixes yet & if so who did you go with...

    My 80K in Shawbrook matures into their EA Cash ISA this Thursday so I'm still working out the best split...

    Currently thinking 40K into two fixes either 2 & 3 year or two 3 year fixes as I feel rates will be much lower in a year/18 months...

    Also unsure if I'm going to select the interest to be paid away or compounded...
    Good evening. Yes I’ve committed so far to two 2 year ISA fixes, one with Nationwide and one with Secure Trust (£5K in total) and one 3 year ISA fix with Principality (£2.5K).

    I’d very much wanted to put another amount of between £2K and £2.5K of previous year cash ISA money into a 3 year ISA fix with another fixed rate cash ISA provider but unfortunately the interest rates available on 3 year fixed rate cash ISAs have recently fallen significantly to a maximum of 5.36% (other than Zopa which does not allow incoming transfers). 

    I don’t personally think that an interest rate of below 5.50% is good value at present for a cash ISA fix of 3 years or more, with the outlook for inflation now uncertain as to whether it will continue to gradually subside or start to rise again, but of course I may be wrong about this and if I am mistaken, perhaps other contributors here can help to explain why.

    With Nationwide today having significantly reduced the interest rates available on all its fixed rate accounts (including fixed rate cash ISAs), I’m seriously considering putting my remaining available previous year cash ISA money into a 2 year fix fairly soon because unfortunately it now doesn’t look at all likely that there will be any improvement to the interest rates available on 3 year cash ISA fixes for quite some time!

    With fixed rate cash ISAs, I prefer the interest to compound within the account rather than be paid away so as to keep it all entirely tax free (including the interest earned on the interest!) Obviously this may not suit those who may need to access the interest as part of their income.

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