Martin Lewis advises on moving your savings into ISAs
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The Bank of England Base Rate rise is much-welcomed news for savers, as many have already been taking advantage of the better deals in the market offered by high street banks and building societies. Barclays is currently offering a market-leading rate on one of its fixed term cash ISAs – and the account can be opened with just £1.
Against rapidly fluctuating interest rates, fixed-term accounts offer an added layer of certainty around savings. This is because they allow account holders to lock in the rate offered at the time of opening.
Cash ISAs also come with additional perks and benefits, as these accounts allow savers’ money to augment without having to pay tax on the interest above the Personal Savings Allowance (PSA).
However, cash ISAs can come with a few more restrictions than other types of savings accounts, such as penalty charges for early access or transfers, or a specific deposit amount required per month.
This means it makes for a better savings option for those who can regularly put money away and keep it there without touching it for a few years.
Barclays Bank’s 1 Year Flexible Cash ISA (Issue 36) is currently offering an Annual Equivalent Rate (AER) of four percent in a limited offer.
Savers can opt for interest to be applied monthly or at the end of term. However, monthly interest can only be paid into a Barclays account – not this cash ISA or any other ISA bond, while end-of-term interest will be compounded annually and added to the cash ISA.
Up to three withdrawals are permitted per year at a maximum value of 10 percent of the balance without facing a penalty. Early closures or whole balance transfers before the maturity date will result in a charge equivalent to 90 days’ tax-free interest based on the current balance at the time.
The account can be managed in a branch or online and once the one year term ends, it will convert to Barclays instant access variable cash ISA.
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But while Barclays takes the lead of money comparison site Moneyfacts’ ‘Best Buys’ for one-year cash ISAs, some other accounts in this category aren’t too far behind.
UBL UK’s 1 Year Fixed Rate Cash ISA is currently offering savers an AER of 3.81 percent, placing just above Virgin Money’s 1 Year Fixed Rate Cash E-ISA (Issue 546) with an AER of 3.79 percent.
Savers can open the UBL account with a minimum deposit of £2,000 and interest is paid on maturity of the term. Early withdrawal is permitted, however, it will be subject to a 90 days’ gross interest.
The Virgin Money cash ISA requires a £1 minimum opening deposit, interest can be paid away or compounded, and paid yearly on August 5.
Withdrawals are permitted but will be subject to a charge equivalent to 60 days’ loss of interest on the amount withdrawn.
On the rising savings rates, Alice Haine, personal finance analyst at Bestinvest said: “Savers that don’t switch their money to a high-interest account – particularly those with pots languishing in legacy accounts with ultra-low savings rates – are missing out.
“Particularly when you consider the real return on any money in a savings account – even the best ones – is still deeply negative as inflation at 10.7 percent erodes the purchasing power of that cash.”
However, Ms Haine continued: “With the Bank of England expecting inflation to ease next year, locking in the best fixed rate you can is key as over the longer term when the gap between pay growth and inflation narrows.
“Plus, the pace of savings rate rises appears to be easing, with some of the highest rates withdrawn as interest rate and inflation expectations lower.”
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