Posts Tagged ‘interest rates’
With time running out to meet the 5th April end of tax year deadline, we bring you our selection of some of the best Cash and Investment ISAs available. We also include some alternative options for those who are seeking the potential for a higher return while still protecting their money, as well as our best-selling fixed income investment, for those considering investing their existing ISAs or new ISA allowance.
New ISA Rules – Save up to £15,000 in your cash ISA
As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put some or all of this allowance into an Investment ISA, or some or all of the allowance into a Cash ISA. Bear in mind that that these allowances are per person, so a couple can put up to £30,000 in total into a cash ISA before the end of the tax year. Make sure you remember the most important end of tax year deadline which is midnight on 5th April. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers.
2015 Cash ISA selections
Instant access Cash ISA selection
If you want to be able to access your money in an instant, the NatWest Instant Access Cash ISA offers a rate of 1.00% (variable) on balances of over £25,000, and a rate of 0.50% (variable) on balances below £25,000. Interest is paid monthly, and transfers in are permitted, meaning that if you transfer in cash from previous years’ ISA you may well be eligible for the higher 1.00% rate as your total amount held may be greater than £25,000. The account is easy to manage in branch, by phone and online, and is open to UK residents aged 16 and over.
Click here to compare other instant access cash ISA options »
Medium term Cash ISA selection
For those looking for a medium-term ISA option, the Aldermore 3 Year Fixed Rate Cash ISA offers a return of 2.20% (gross) with a minimum deposit of £1,000. Interest is calculated daily and can be paid either monthly or annually. Transfers from other ISA providers are available, and the account can be managed by phone, by post or online. You can withdraw cash early if you need to, but be aware that to do so means that you will be subject to loss of interest.
Click here to compare other medium term fixed rate Cash ISA options »
Inflation hits 15 year record low
The rate of inflation as measured by the Consumer Price Index fell to 0.5% in the year to December 2014, according to official figures from the Office for National Statistics announced last week. This represents a fall of 0.5% on the previous month and is the joint lowest level on record. The last time inflation fell by 0.5% in a single month was May 2000.
The key contributors to this significant fall in the Index are the plummeting price of oil,. which meant that the cost of motor fuels fell by 10.5%, as well as stagnant gas and electricity prices compared with energy price increase a year earlier. Food prices also dropped by 1.9%.
Deflation on the cards?
The effect of lower oil prices, plus the ongoing price war between the high street supermarkets, and it is likely that inflation will remain below 1% for some months, although some see further falls as a possibility. Capital Economics UK economist, Paul Hollingsworth, said he felt inflation still had further to fall as there was still some way to go before the reduction in the oil price was fully accounted for in the headline rate.*
Commenting on the recent fall, he stated “the further 20% or so fall in oil prices since December’s average level looks set to push CPI inflation to a record low of around 0.2% over the next couple of months… and given uncertainties surrounding how quickly and to what extent lower oil prices will cause price rises for other goods to moderate, a brief period of deflation is not entirely out of the question.”
For those who are not prepared to risk their capital to try and achieve higher returns, the ability to rely on traditional savings products has never been more challenging. Savers keen to maximise the level of FSCS protection with their capital have only really had a couple of options historically. Either accept a variable rate but have instant access to your savings, or alternatively sacrifice access and receive a higher interest rate depending on how long you are able to tie up your money.
But as savers continue to face significant falls in the level of income available, more and more of us are having to face the truth about just how serious the situation is. So what are you doing with your savings and have you questioned your decisions in the past? Here we take a look at the harsh reality being faced by savers whilst looking at the pros and cons of the options being considered. Our Head of Savings and Investments, Oliver Roylance-Smith, will also offer his own view in the context of the current savings rates on offer and the outlook for the market in the coming years.
‘Tis the season to be jolly…
Unfortunately the start of advent has not brought with it any gifts for savers. Although the plight of savings rates often takes a back seat to the more economically charged debate around when we might see a rise in interest rates, the ongoing situation for savers is a fairly easy one to square off.
The current Bank of England base rate of 0.5% is the lowest it has ever been, and with the Monetary Policy Committee (MPC) voting again this month to keep it on hold, we are now in the 68th consecutive month of this record low – that’s’ over 5 and half years… So if you’ve ever made a decision on your savings based on the hope that interest rates might go up within the next 12 months, you now have a constant reminder of how painful this can be.
There’s something quite satisfying about knowing that the rate you are receiving was the best rate in the market at the time of taking out the product, and for fixed rate bonds, especially in a such a low interest rate environment, it is imperative to shop around and make sure you get a competitive deal. Well fortunately Investec are here to help with not just one, but two market leading savings rates over three and five years respectively. Not only are the rates on offer currently top of the tables, they also offer a little extra…
Investec 3 Year Base Rate Plus Account – minimum 2.50% AER
For those who want to take advantage of increases to the Bank of England Base Rate but still want the convenience and security of a minimum fixed return, Investec has shown some welcome innovation in the market with their 3 Year Base Rate Plus. The account pays 1% AER/variable above the Bank of England Base Rate, but with a minimum rate of 2.50% AER, so whatever happens you know you will never earn less than this.
The talk of interest rate rises is never far from the spotlight and although the consensus is that this is unlikely to be before next year, a lot can happen over a three year timeframe. This account therefore offers you the chance to take advantage of any future Base Rate rises over the next three years whilst also offering the safety net of a minimum return that is currently market leading for a three year fixed rate.
Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted and the minimum is £25,000. You can apply online and access to account information is via online and telephone banking.
Fair Investment view: “The minimum deposit of £25,000 is a little high but increased minimums have become more common in order to secure the best rates and the 2.50% AER minimum is currently market leading for a three year fixed rate. With inflation slowing to 1.2% for the year to September, the rate has been popular with savers looking for a market leading fixed return and FSCS protection, but who also have half an eye on what might happen to interest rates in the next few years.”
Click here for more information about the Investec 3 Year Base Rate Plus Account »
With the halfway point in the tax year upon us, why not take this opportunity to review your ISA planning whilst you still have plenty of time to do so. We can all be guilty of leaving things to the last minute and since the changes to the ISA rules give us all a significantly increased allowance, this really should be a top priority for all savers and investors to carefully review any existing ISAs as well as the range of options open to them. To help you act and act fast, our head of savings and investments, Oliver Roylance-Smith, has put together his Top 10 ISA tips, so there can be no excuse for missing out on valuable tax-efficient returns well before the end of the tax year…
Tip 1 – Maximise your ISA allowance
Recent changes to the ISA rules which took effect on 1st July mean that your ISA allowance for 2014/15 tax year is now £15,000, making this latest increase to the ISA allowance the largest since ISAs were introduced in 1999. Remember that this allowance is per person, so a couple can invest up to £30,000 in total this tax year. We will have to wait until the Autumn Statement to find out if the ISA allowance will increase for the next tax year but on the assumption that it at least stays the same, that’s a total of £60,000 between a couple that could be invested in ISAs in a little over six months.
Since the changes to the ISA rules took effect, we have seen many new and existing customers putting the maximum £15,000 allowance into their ISA, clearly seeing the importance of keeping any income and growth from the tax man/ keen to make the most of this valuable tax break. Remember though that this latest increase to the allowance includes any ISA contributions between 6th April 2014 and 30th June 2014.
Investec Bank continues to offer innovative savings plans which combine a competitive interest rate with efficient service and attractive features. So if you have a minimum of £25,000 to deposit, and you want to take advantage of some of the highest savings rates on the market, their latest range of accounts are certainly worth reviewing. With a range including instant access and fixed terms between 1 and 5 years, there should be something for every saver. All the Investec savings accounts featured below are covered by the Financial Services Compensation Scheme (FSCS).
Investec E-asy Access – 1.30% AER
The E-asy Access Account pays 1.30% AER variable with interest paid monthly and there is no bonus included in the rate so what you see is what you continue to get. This is a no notice easy access account and so there is no restriction on the number of withdrawals or who you can pay. The account is available as a single or joint account and access to account information is via online and telephone banking. Interest is paid monthly and will therefore compound unless paid away into another account. You can apply online, request further information to be sent to you via email, or have someone from the bank call you back.
Click here to find out more about the Investec E-asy Access Account »
Structured deposits have experienced a rapid rise in popularity on the back of a sustained period of record low interest rates and falling savings rates. Fixed rates are under pressure and with the continued uncertainty around inflation and the cost of living often rising faster than the increase in workers and pensioner’s earnings, many savers are turning to investing in order to try and meet the increasing demands from their capital. But there is a middle ground that does not put your capital at risk – the structured deposit. So that you may better understand this alternative product range and to help you find out whether they could compliment the other savings you have, we have put together our Savers Guide to Structured Deposits.
Savings rates reality
The mainstay of many a saver’s portfolio has historically been the fixed rate bond. However, rates here have been under continued pressure as banks have been able to secure cheap funding by alternative means. This means long gone are the days where committing your money for longer was all you needed to secure a high return that also had the potential to outstrip inflation. With many maturing fixed rate bondholders facing significant falls in the yields available, longer term fixed rates are in many cases failing to meet the needs of savers.
In addition to investing some of this capital to try and make it work harder, at the other end of the risk spectrum this has also resulted in a worrying trend of many savers shoring up more money than they normally would in instant access accounts. With many of these failing to offer rates anywhere close to inflation, savers are losing money in real terms – and that’s before the impact of tax is taken into account. So savers continue to face the toughest of decisions – either lose money in real terms from a savings account or take on more risk – and it is against this savings rates reality that the structured deposit has risen in popularity.
Generating an income is one of the most constant demands placed on our capital, and yet the questions posed by the savings and investment landscape remain as challenging as ever. From the wide range of savings and investment plans to choose from and which features to consider, to the greater freedom available from ISAs, it is more important than ever that all options are considered carefully. But where do you start? We take a quick tour around the current challenges being faced by income seekers as well as highlight some of the more popular savings and investment options being used by our customers.
The here and now
For income seekers, the aftermath of the global financial crisis is still very much upon us as the period of record low interest rates continues and historically low savings rates hamper cash savers to achieve returns anywhere close to those seen in previous years.
While top fixed rate deals might be thin on the ground at the moment, there are alternatives to traditional fixed rate bonds, such as structured deposit plans, which could be an option for those who would normally have chosen to lock their cash away in a fixed rate bond. See below for our selection of some of the best fixed rate bonds and alternative savings plans on the market in March 2014.*
Short term fixed rate bonds
For those looking for a short term fixed rate with a low deposit requirement, Aldermore currently offers a one year fixed rate bond offering 1.60% gross/AER requiring a minimum deposit of £1,000. No withdrawals are permitted during the term of the bond.
For a shorter fixed rate deal, Principality offers the option of a 9 month fixed rate bond or an 18 month fixed rate bond, with the former paying 0.75% AER/gross and the latter paying 1% AER/gross. Both of these fixed rate bonds require a minimum deposit of £5,000, and no additional deposits or withdrawals are permitted during the term of the plans.
For those with a larger lump sum to deposit, Cater Allen offers a 1.30% AER/gross rate on its 1 year fixed rate bond to customers with an initial deposit of £50,000 or over, guaranteed by Santander. Withdrawals are not permitted during the fixed term.