Written by Karen Bryan
I’m searching for the best fixed rate Cash ISA savings account. The new tax year began on 6 April 2013 and the annual Cash ISA limit is now £5,760 per person.
I can’t even find Cash ISA paying a rate of interest that is equal to the rate of inflation; RPI currently stands at 3.2%. This means that my savings won’t maintain their spending power.
The next question is for how long to tie up the money. Halifax is paying 3% on a Three Year ISA Saver Fixed account. The four year version pays 3.05% and the five year 3.10%. I’ve read that interest rates may start to increase after 2016. I’m not sure whether it’s a good idea to tie the money up for more than three years. The increase in the rate of interest for the longer commitment is tiny.
It’s perverse that I’m getting a 3% (variable) rate of interest on my Santander 123 Current Account, as long as the balance is between £3,000 and £20,000. However, I have to pay 20% tax on that interest, bringing the net rate down to 2.4%. Santander could reduce that rate of interest paid on the 123 Current Account at any time. That’s why a tax free Cash ISA, even if it only pays a fixed but paltry rate of 3%, is a better option.