ISAs: Last Minute Decisions

Mar 26, 2012   //   by Keith McDonald   //   Banking and Savings Accounts  //  Comments Off on ISAs: Last Minute Decisions

Research shows that there’s a lot of money left to pour into cash ISAs before the door slams on this tax-year.

And, according to high-street banks Santander and Halifax, the vast majority of savers now prefer the stability of fixed-rate ISAs – even at the sacrifice of access to their cash – to the slippery variable rates offered by instant access ISAs.

The vexation that cash ISAs products have created in recent weeks makes this revelation unsurprising. Contending with transfer regulations and different bonus rates has undoubtedly tested savers’ patience and goodwill.

“We have seen a stark shift in savings behaviour in 2012 with customers primarily opting for fixed rate products over variable rates”, explains Richard Fearon, Halifax’s Head of Savings.

“It’s not surprising to see that many savers prefer the certainty and peace of mind that comes with a fixed rate of return”, says Matt Hall, Santander’s Head of Savings.

This is particularly notable because the instant-access ISAs offered by these two banks in particular – part of what I’ve recently termed “the old order” – seem designed to steer customers in the direction of fixed-rate ISA products.

Both instant-access ISAs carry a substantial introductory bonus of at least 2.75% for 12 months, with minimal returns afterwards. The interest tables on Which4U’s latest analysis show these two to be the poorest performing ISAs in the second year.

These are designed to offer meaningful returns for one year only. And this formula has worked far too easily for banks in recent years. Most Brits are not frequent-swappers when it comes to banking products. Through genuine loyalty or apathy, the majority stick resolutely to the same accounts even when it is known that there are better alternatives.

The performance graphs we have used over recent weeks, such as that below, show how quickly banks can benefit (and how quickly consumers can lose) when ‘standard’ rates crumble.

ISA Table 23 March 2012

The performance of a single deposit of £5,340 over 24 months. Click image for full-size.

Instant-Access ISAs

So, what’s available in the instant-access market, and what are the restictions? A quick guide:

Cheshire Building Society DirectSave Cash ISA:

Bonus: 3.50% [Expires 30/09/2013].
Standard: 1.00%
Pros: Market-leading rate. Accessible to new customers. Extended bonus.
Cons: Operated by post. No transfers.


Nationwide e-ISA

Bonus: 3.10% [Expires 30/09/2013]
Standard: 1.00%
Pros: Strong performing. Extended bonus. Transfers.
Cons: Applicants must be a Flexaccount holder.


Principality e-ISA:

Bonus: 3.10% [12 months]
Standard: 1.80%
Pros: Strong rate. Fully accessible. Transfers.
Cons: Standard rate slightly below the best.


Barclays Loyalty Saver Cash ISA:

Bonus: 3.05% [12 months]
Standard 2.05%
Pros: Good bonus. Longevity. One of the best standard rates.
Cons: No transfers. Current account (or old investment) required.


Natwest e-ISA:

Bonus: 3.00% / 3.25% [£10k+] / 3.50% [£30k+] [12 months]
Standard: 2.00% / 2.25% / 2.50%
Pros: Fully accessible. Transfers. Big rates for high deposits.
Cons: Lowest tier marginally less competitive.


Fixed-Rate ISAs

Institutions that have spoken fondly of fixed-rate ISAs are offering stronger deals in this area.

Halifax is offsetting its relatively poor instant-access cash ISA by offering a strong selection of longer-term fixed-rate ISAs, at 4.25% (3 year), 4.35% (4-year), and 4.50% for the 5-year ISA.

However, savers must be prepared to lock away their cash for the entire period if they wish to take advantage of these secure rates. Those in a position to do so can take advantage of some of the best rates for traditional savings products, and all returns remain tax-free.

Those who might be willing to do so for a shorter period could benefit from the Cheshire Building Society’s 18-month fixed-rate ISA at 4.00%.

It makes sense for people to keep all their ISA money in one place and seek the highest guaranteed return on it, even if this means locking away their money.

Matt Hall, Santander

Why not try Which4U’s simple flowchart to help you identify some of the ISAs that might best suit your needs?

ISA FlowChart 23 March

Featuring products listed on Which4U only. Click image for full-size.

Visit our ISA page and get signing up while you can.

Keith McDonald
Which4U Editor

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