ISA -v- 5 year fixed rate

BOBS · 3 October 2017 at 9:33AM

Just a quick question before I lock my hard earned £££ away .

ISA savings currently sitting at a paltry 0.25% interest. Have applied for Tesco fixed rate 2.35 for five years account .

Is there any downfall to doing this fixed rate account instead of ISA - apart from the obvious not being able to access money ??

IanSt · 3 October 2017 at 10:10AM

Have you looked at https://www.moneysavingexpert.com/savings/savings-accounts-best-interest.

How much money are you going to put in and have you already fully used the various current accounts that bring in more than that 2.35%? E.g. you can get 5% at Nationwide for at least some of your money.

At 2.35% I would be very wary about putting it away for 5 years when you can get just under 2% for fixing a year, and just over 2% for two years.

With regards to leaving the money in the ISA, that would depend on how much money you have there already and how much you are likely to be adding. The current low rates will not remain low for ever and there may come a time when the ISA interest would be more than the tax free amount you can currently receive - assuming you are a normal basic rate tax payer.

But if you do leave the money in the ISA then definitely look to move it to an ISA provider account that is paying more. Take a look at http://www.moneysavingexpert.com/isas/.

Eco_Miser · 3 October 2017 at 1:53PM

BOBS wrote: »

Is there any downfall to doing this fixed rate account instead of ISA - apart from the obvious not being able to access money ??

IF interest rates generally rise above 2.35%, you are stuck getting just 2.35%.
But it's a big IF.

redmalc · 3 October 2017 at 6:24PM

Eco I asked myself the same question in 2013 and thought the interest rates would increase but I am now looking at 1.4% with Charter which is still rubbish

BOBS · 3 October 2017 at 7:11PM

IanSt wrote: »

Have you looked at https://www.moneysavingexpert.com/savings/savings-accounts-best-interest.

How much money are you going to put in and have you already fully used the various current accounts that bring in more than that 2.35%? E.g. you can get 5% at Nationwide for at least some of your money.

At 2.35% I would be very wary about putting it away for 5 years when you can get just under 2% for fixing a year, and just over 2% for two years.

With regards to leaving the money in the ISA, that would depend on how much money you have there already and how much you are likely to be adding. The current low rates will not remain low for ever and there may come a time when the ISA interest would be more than the tax free amount you can currently receive - assuming you are a normal basic rate tax payer.

But if you do leave the money in the ISA then definitely look to move it to an ISA provider account that is paying more. Take a look at http://www.moneysavingexpert.com/isas/.

Thanks for advice - will look at shorter fixed rate. I have posted before for advice but am so scared of risk etc and would rather be conventional and stick to what I know. Have £25k

Dazed_and_confused · 3 October 2017 at 8:53PM

All your interest on this 25k, roughly £600/year, will now be taxable income so depending on your personal circumstances you could have additional tax to pay as a result, effectively reducing your return.

If this is your only interest and your total income increasing doesn't affect anything else then it may be taxed at 0% but you could just as easily have extra to pay if you fall into particular groups (child benefit charge, income over £100k or elderly married pensioner spring to mind).

BOBS · 3 October 2017 at 9:27PM

Dazed_and_confused wrote: »

All your interest on this 25k, roughly £600/year, will now be taxable income so depending on your personal circumstances you could have additional tax to pay as a result, effectively reducing your return.

If this is your only interest and your total income increasing doesn't affect anything else then it may be taxed at 0% but you could just as easily have extra to pay if you fall into particular groups (child benefit charge, income over £100k or elderly married pensioner spring to mind).

Household income around £30k with 3 children

Dazed_and_confused · 3 October 2017 at 9:30PM

Unless born in the 1930's don't think it will cost you any extra tax.

As it is going to be over £300 it could affect tax credits if you claim them.

scoot65 · 3 October 2017 at 10:32PM

Eco_Miser wrote: »

IF interest rates generally rise above 2.35%, you are stuck getting just 2.35%.
But it's a big IF.

I see what you did there!! lol

BOBS · 4 October 2017 at 9:32AM

Thanks everyone for ongoing advice.
Further research on this site this morning I have came across virgin fixed rate ISA -
https://uk.virginmoney.com/savings/find/5_year_fixed_rate_cash_e_isa_issue_268/overview/
5 years at 2.15% - plus added bonus the fact that if
"""IF - Eco Miser """
interest rates do rise I am able to move my money with the penalty of 180 days of interest . Plus the interest isnt taxable and therefore wont affect what little tax credits we get.
Thinking that this sounds a much better option ?

IanSt · 4 October 2017 at 10:42AM

You possibly could get a bit more money through other accounts, but the 5 year Virgin ISA does look to be a simple way to increase your interest and gives you the flexibility to move it should interest rates start moving upwards. I did a similar thing into a Coventry ISA a few years ago and haven't regretted it.

ISA -v- 5 year fixed rate

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