ISA understanding

Drillsalter

There is a ISA on offer from CMC investment offering 5.44% easy-access Cash ISA (4.59% variable + a fixed 0.85% bonus for 90 days). 

Can anyone explain what this means? Variable is changeable, but does it mean it doesn't go below 4.59%? And I would get and additional 0.85% after 90 days on my savings?

Any insight would be appreciated. 🙂

eskbanker

Drillsalter said:

There is a ISA on offer from CMC investment offering 5.44% easy-access Cash ISA (4.59% variable + a fixed 0.85% bonus for 90 days). 

Can anyone explain what this means? Variable is changeable, but does it mean it doesn't go below 4.59%? And I would get and additional 0.85% after 90 days on my savings?

Any insight would be appreciated. 🙂

Theoretically the only guarantee is that it can't go below 0.85% (which is an annualised rate, not what you'd actually receive for 90 days).

Drillsalter

This is their advert

Earn tax-free interest with our 5.44% easy-access Cash ISA (4.59% variable + a fixed 0.85% bonus for 90 days). New Cash ISA customers only; includes transfers in from other providers. T&Cs apply.

• - Flexible ISA

• - Unlimited withdrawals (with no penalties)

• - Tax-free interest: earned daily, paid monthly

As I read now, the max I could get is 5.44% which is made up of 4.59% if rate stays at this, plus a 0.85% bonus.

I read through there T&C, but I can't see a minimum that this rate can fall too.

You are saying that the variable rate could fall as low as 0.85%?

It looked good when I first read it. I'm just wondering now. 🤔

El_Torro

4.59% isn't a bad rate, even ignoring the 0.85% bonus. 

eskbanker is correct in saying that the rate could theoretically fall to 0.85%. This is very unlikely to happen in the coming months though. If the Bank of England interest rates drop in August (they are expected to) then don't be surprised if the CMC ISA follows suit. It could drop by the same amount that the BOE rate drops, or it could drop more.

One factor in deciding whether to drop rates is how popular this ISA is. If CMC gets more subscribers than they were expecting they might decide to drop rates to encourage some of the subscribers to move money out. This isn't information that most of us are privy to, that's just the risk you take when opening an easy access Cash ISA.

eskbanker

Drillsalter said:

I read through there T&C, but I can't see a minimum that this rate can fall too.

You are saying that the variable rate could fall as low as 0.85%?

It looked good when I first read it. I'm just wondering now. 🤔

No, I'm saying that a variable rate could theoretically fall to 0%, and that it's only the fixed rate component that offers a guarantee.  However, as above, variable rates will often respond to base rate changes or market movements, and dropping to 0% is vanishingly unlikely - worth remembering that it's an easy access product so if the rate drops below what you're comfortable with then you just vote with your feet and save elsewhere instead....

saajan_12

Drillsalter said:

I read through there T&C, but I can't see a minimum that this rate can fall too.

You are saying that the variable rate could fall as low as 0.85%?

It looked good when I first read it. I'm just wondering now. 🤔

No, the variable rate will usually follow changes in the bank of England rate but could theoretically fall to 0%. Which means 0% + 0.85% bonus = 0.85% minimum. Could doesn't mean its likely in the forseeable though.  As its an easy access account, if it did drop more than others then you could transfer the money to a better paying account.

So if comparing to other easy access, then this is a good rate for right now and later can be figured out if / when that changes. 
If comparing to other fixed rate accounts, that's different and depends on what you think will happen / whether you prefer a guaranteed rate vs taking the chance on higher / lower. 

Drillsalter said:

There is a ISA on offer from CMC investment offering 5.44% easy-access Cash ISA (4.59% variable + a fixed 0.85% bonus for 90 days). 

Can anyone explain what this means? Variable is changeable, but does it mean it doesn't go below 4.59%? And I would get and additional 0.85% after 90 days on my savings?

Any insight would be appreciated. 🙂

No, its saying the annualised rate is 5.44% for the first 90 days and then 4.59% thereafter, though both are subject to change. Say they don't change and you deposit 10k, then with simple interest you'll have 
* after 90 days you'll have 5.44% x 10,000 x 90/365 = £134
* after another 275 days you'll have another 4.59% x 10,000 x 275/365 = £346
Note it would actually be slightly more due to compounding. 

Albermarle

If you want to fix a rate for a longer period, you have to go for fixed rate/fixed term accounts.