Nationwide Launches New 5 year Fixed Rate Cash ISA – But is it worth it?
Nationwide has recently launched a selection of new fixed rate cash ISAs, including a four year fixed rate ISA offering a rate of 2.40% gross/AER pa, and a five-year fixed rate ISA offering a rate of 2.50% gross/AER pa. Both accounts can be opened from £1, either in branch or online, and accept transfers in from other ISA providers.
Two of the new products on the market are a four year fixed-rate and cash ISA. The others are five year fixed-rates versions of the same product - so savers will have to tie up their cash until at least 2017 to get the new rates.
Beware of fixing for too long
However, some experts have expressed concerns that savers could miss out if they tie up their money for longer than two or three years. Andrew Goodwin, of forecasters ITEM Club, says: 'Interest rates will stay low for the next two-and-a-half years. Then we will be in the rate hiking season with rates rising by one percentage point a year. The longer you leave your money in, the more danger of your being left behind.'*
Instant access ISA options
If you'd prefer to retain flexibility when it comes to accessing your money, you might want to consider one of Nationwide's instant access cash ISAs. The Nationwide Web ISA offers a rate of1.50% gross/AER including a fixed bonus rate until 30th November 2014 (for balances over £1,000). After this date the rate reverts to 0.50% AER tax-free variable. For any day your balance goes below £1000+ you earn a rate of 0.25% AER tax-free variable. The Easy Saver ISA offers a variable rate of up to 1.75% gross/AER tax-free including an introductory fixed bonus rate of 1.25% gross/AER until 20th November 2014. After this date the rate reverts to 0.50% AER tax-free variable.
AER - Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. (As every advertisement for a savings product which quotes an interest rate will contain an AER, you will be able to compare more easily what return you can expect from your savings over time)
Alternatives to fixed rate ISAs
If you are prepared to tie up cash for a set period, you might be interested in an alternative to a fixed rate cash ISA known as a structured deposit ISA. This type of plan typically lasts for a three to six year term, and could potentially offer higher returns than a traditional fixed rate ISA. Structured deposit plans offer returns that are linked to the performance of an Index such as the FTSE 100. Your capital is not put at risk, but any returns are not guaranteed as they are dependent on market performance.
Tax treatment depends on individual circumstances and is subject to change in the future.
Structured deposit plans are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The returns from structured deposits are not guaranteed. The past performance of the FTSE 100 Index and any companies listed on the FTSE 100 Index is not a guide to future performance.
No news, feature or comment should be seen as a personal recommendation to invest. If you are at all unsure of the suitability of this type of investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
*source: This is money 19.09.13