Fixed Versus Variable Rate Cash ISA

Written by Karen Bryan

Interest rates are currently (October 2011) low is the UK, with an instant access Cash ISA paying around 3% tax free, which with inflation standing at around 5%, means my savings would be losing 2% in value per year.

The highest rate I can find is a fixed rate of 4.4% for 5 years with the Halifax. I’m loathe to tie the money up for five years in case interest rates do increase within in the next couple of years. There’s also the possibility that we may move home to a more expensive area in the next five years. However at least with a tax free interest rate of 4.4% my money will almost be keeping pace with inflation.

I also need to check that the Cash ISA accounts I’m considering accept transfer as many don’t; they will only accept new deposits up the Cash ISA maximum for the current tax year.

I need a crystal ball here as I’m just not sure when interest rates will increase and if inflation will keep increasing or start to fall. However, I need to make a decision soon and getting a real return on our savings is looking impossible at present.