Long Term Cash ISA

MissHap

Question........................Looking at the next tax year, at what point do you decide a long term cash ISA is better than a short term one??
Top Interest rates for a one year and a 5 year are less than a 1% difference so if you compound the interest your quids in...........................or am I wrong?? 

Malchester

Remember that if you take out a 5 Yr fix the rate is fixed for 5 years. If rates go down you still get the rate. If you take out a 1 Yr fix the rates will probably or possibly be lower at the end of the 1 year. 

For what it's worth I took out a 5 year fix with Gatehouse Bank at 4.6%, shortly afterwards rates for 5 year fixes fell and nothing gets near that now (as far as I can see) and I know I could get a better rate for a 1 year fix but what will rates be in 1 year? 

BoGoF

Do 5 year (or any multi year) fixed ISA's allow you to contribute future years allowance or are you stuck with what you paid/transferred in at the outset? 

Albermarle

BoGoF said:

Do 5 year (or any multi year) fixed ISA's allow you to contribute future years allowance or are you stuck with what you paid/transferred in at the outset? 

Normally you have only a short window when opening a fixed rate account to add money ( usually 30 days but not always).
There are a handful of providers who allow later deposits ( as long as the product is not withdrawn in the meantime) but I am not sure if that only applies to one year fix rates. For sure they only allow transfers in at the beginning.
Shawbrook is one such provider.

Albermarle

MissHap said:

Question........................Looking at the next tax year, at what point do you decide a long term cash ISA is better than a short term one??
Top Interest rates for a one year and a 5 year are less than a 1% difference so if you compound the interest your quids in...........................or am I wrong?? 

Basically it is a sort of gamble on predicting future interest rates. So if you fix for 5 years, it might work out a good deal or it might not, as compared to say fixing for one year and renewing it every year.

Anybody who fixed 5 years ago would have been stuck with a rate < 2% . Although with a fix rate ISA you can get out of the fix if you pay a penalty.

MissHap

Top 5 year rate today is 4.16% giving a compounded return after 5 years £4.5k, for me and the other half that's £9k tax free.
I suppose after year one you can top up this ISA or start another one, depending on the rates at the time.

eskbanker

MissHap said:

Top 5 year rate today is 4.16% giving a compounded return after 5 years £4.5k, for me and the other half that's £9k tax free.
I suppose after year one you can top up this ISA or start another one, depending on the rates at the time.

As mentioned above, don't assume that you can top up a fixed term product after a short initial funding window (typically less than a month), this is very much the exception rather than the rule.

MissHap

My thoughts are to open this as a new stand alone cash ISA in the next tax year.

eskbanker

MissHap said:

My thoughts are to open this as a new stand alone cash ISA in the next tax year.

I'm struggling to see how that relates to my post above it, but perhaps it wasn't meant to?

MissHap

I understand what you meant, my intention is to open a 5 year fixed rate cash ISA with £20k.
The decision to top up annually to be taken dependant on rates elsewhere in year 2.