Times are hard for people trying to get a foot onto the home ladder. Home-buyers are faced with it being more difficult to get their hands on mortgages Banks and Building Societies and Pensioners are faced with lower returns because of low interest rates. But the government is introducing a Lifetime ISA or a LISA, where it will provide free money for LISA holders, yes FREE MONEY FROM the Government, based on certain criteria of course. Read More
It’s a real quiz for savers looking out a new cash Isa home this March or April: to plump for the freedom of an instant access account or lock into a fixed-term for a boosted rate? There is no one-size-fits-all answer, but a handful of crucial factors decide which type of account is right for you.
Interest rate expectations has a big part to play:
- The Bank of England base rate, which has been locked down at 0.5 per cent – a record low – since March 2009.
- This has kept savings rates extremely low. In December 2007, the average Isa (fixed and variable) paid 5.5 per cent.
- In the process, instant access and fixed rates have split into very separate paths.
- It leaves savers with a choice between locking up into a fixed deal to boost their returns, or waiting for the Bank of England to raise base rate and give Isa returns a boost.
Are you confused about how to make the most of your cash ISA ? Do you know what interest rate it is paying ? Have you got any old accounts or passbooks lying around ? Follow our top tips to help you make the most out of your ISA.
Inflation running far ahead of the Bank of England target, most savers are finding that their money is worth less by the day. There are steps that savers can take to avoid inflation eroding their savings. Below we look at the most popular options.
Inflation-linked bonds and accounts
Some banks and building societies have launched inflation-linked products for those concerned about their cash losing value. But, it can be difficult to work out which ones are best for you, and some tie your money up for a long time.
Bonds from National Savings & Investments have the advantage of not requiring you to pay tax on your interest, and offer 0.5pc above the RPI when held for five years. However, you can take your money out earlier and still get a return as long as you hold them for at least a year. You can put in £15,000 per issue.
For those who pay tax on their interest it is almost impossible to outrun inflation.
This makes it more important than ever to use your tax-free cash ISA allowance of £5,340 a year. The best rates are available to those who are willing to put their money away for five years, and include Northern Rock’s fixed-rate Isa paying 4.26pc over five years, just below June’s CPI figure. With inflation predicted to fall back from here in the coming months, this product should help your cash to maintain its value.
Another option to avoid inflation on your savings is to make overpayments on your mortgage. By offsetting your savings against your debt, you effectively end up with an interest-free savings rate at whatever rate you are paying on your mortgage.
For many people this will be better than a top-paying savings account. However, you need to make sure that you do not fall foul of your lender’s rules on overpayments. Some mortgages are fully flexible, allowing you to make overpayments and get them back freely, while others do not allow you to take overpayments back, or will charge you if you make too many.
Top paying savings account
If you want total security for your savings and have exhausted all other options and used your tax-free allowance, the best you can do is to find the best paying home for your money. You will get more interest if you tie up your money for longer, but the tax, if you have to pay it, is likely to take the total return way below inflation.
If you want to take on more risk, a portfolio of dividend-paying shares can help you to outrun inflation. This is only an option for those with a diversified portfolio and who can withstand (both emotionally and financially) the ups and downs of stock markets. The good news is that after a dreadful couple of years, the number of companies increasing or reinstating dividends this year outnumbers those that cut or cancelled payouts in 2009.
But investors might prefer to buy funds than invest in a spread of dividend–paying companies, which tend to be equity-income funds. These funds have had a tougher time than many over the past three years, but are starting to come into their own as dividends make a comeback.