Fixed rate or variable rate - is it really that big a deal?

[Deleted User]

Hi

So i've read a lot of threads suggesting a fixed rate ISA is probably better than a variable rate ISA over the coming years. What are people's thoughts on this? Is this really going to be the case? Is it really worth going for a fixed rate ISA at say 6.2% rather than swapping yearly and getting 6.5% at present then who know's what next year?

How much could they really drop by over the next few years?

If anyone can offer advice for my situation that'd be great too...

I'll have £3600 to put in sometime in April or May this coming tax year then I'll hopefully save £300 a month for the following two years after. So a total of 3 years or £10800 and I won't be touching it. Then it'll hopefully be a deposit for a house so I'm looking to get every penny possible in interest!

Any suggestions or thoughts appreciated

[Deleted User]

Just used the cash ISA calculator at http://www.moneysavingexpert.com/savings/best-cash-isa

and inputting £3600 for what I already have, £300 for what I plan to save a month and an interest rate of 6.5% gives me over 2 year £11,776.43

Changing this to 6.1% gives me £11,715.13.

So based on this I understand it as if say I go for Barclays at say 6.5% and save at most £61 (assuming the rate doesn't drop) but in reality risk the rate dropping on this or any other top paying ISA.

Or just go with Icesave’s 6.1% guaranteed rate, to be at least 0.3% above UK base rate until the end of Jan 2011.

Am I missing something or is this a no brainer? Surely just go for Icesave's ISA? Also reassuringly covered by the FSAs £35k compensation for those worried about the current climate...

Stavros_3

Variable rate doesn't drop at the end of the financial year, you could for instance put your 3.6k into the alliance variable rate ISA on 6th April and on the 7th Aoril they drop the rate to 5%, where-as if you put it into a 6.15% fixed on the 6th April, thats the amount you get in a years time. INMO the way things are at the moment, fixed rate wins hands down for me

[Deleted User]

Very good point Stavros, never thought of it like that

jamesd

You're taking a financial risk: will variable rates drop below the fixed rates soon enough that you're better of with the fixed rate? They probaby will drop and the chance of that increases as the financial troubles get worse. But still, it's a risk and you have to choose which side of the risk you want to take.

Mikeyorks

Deleted_User wrote: »

I'll have £3600 to put in sometime in April or May this coming tax year then I'll hopefully save £300 a month for the following two years after.

Apologies if I've misconstrued this but ..... what you say above coupled with :

Or just go with Icesave’s 6.1% guaranteed rate, to be at least 0.3% above UK base rate until the end of Jan 2011

..... makes it sound as though the £300pm is also targetted directly at the ISA? Which, of course, you can't do. As the '£3.6k in April / May' fully utilises your 08-09 allowance ..... so you can't add further funds to a cash ISA until 6th Apr 09. When the £3.6k allowance starts over.

[Deleted User]

To clarify - I'll hopefully put in £3600 in Apr / May for the 08-09 allowance then for both the 2009-2010 and 2010-2011 allowance I'll hopefully put in £300pcm.

Mikeyorks

That works;)