Pathetic Rates on Cash ISAs for the New Tax Year

Written by Karen Bryan

poundsigncoinsI’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.