The European credit crisis, huge public borrowing and more recently Brexit and COVID-19 have all put pressure on central banks to keep interest rates close to zero.
Indeed, the amount of global debt issuance by investment grade companies paying negative interest rate hit just over 17 trillion USD recently – a new record - although perhaps not one to shout from the rooftops about!
The chart below from the BOE gives you a good visual aid on current cash return prospects.
"Looking at this graph
if you are looking to invest for the longer term you have to question the logic of putting money into a standard cash ISA".
Oliver Roylance-Smith, Head of investment & savings.
UK savers who keep money in long term savings accounts or Cash ISAs where returns are historically lower on fixed rate products will be doing very well to keep their money's buying power ahead of inflation.
"Are you one of the 8.5 million adults that subscribed more than £44 billion into Cash ISAs in the last tax year, or maybe you’re part of the £268 billion currently held in Cash ISAs?
Either way, its possible that you are receiving record low returns, with market leading interest rates only offering around 1.0% to 1.10% AER on 3 to 5 year fixed rate ISAs at the moment. So are there any other options to consider?"
Needless to say, investors are left scratching their heads in how to earn any meaningful yield on their money.
If you’re prepared to forego a fixed return, Investec Bank’s popular Kick Out Deposit Plan, offers the same capital protection as any other bank deposit, but will pay 2.25% for each year (not compounded), provided the FTSE 100 Index at the end of each year from year 3 onwards, is higher than its value at the start of the plan (subject to averaging).
That’s a potential 6.75% after 3 years, 9.0% after 4 years, 11.25% after 5 years, etc.
Since the plan is also available as a Cash ISA, and accepts ISA transfers, if you’re thinking what else is there that could release greater potential from your cash, this is an option.
The downside is that the return is not guaranteed, so you could receive only your initial capital back.
Lets face it the best fixed cash ISA rates are not as competitive as the best non cash fixed ISA rates.
One of the challenges with cash is that rates are changing all the time and you need to be proactive in moving money when rates fall.
If you are looking for better returns on your cash (money held outside an ISA) & keeping your money in an ISA is less important than earning a top UK interest rate then...
The good news is that there is a new service offered by Hargreaves Lansdown called "Active Savings" where you no longer have the hassle of opening, closing and transferring your savings between different banks and building societies.
Once your account is open, you can pick and mix savings products from a range of banks and building societies, without ever having to fill in another form.
There are a range of products and terms to choose from, and you can have as many as you like.
With Active Savings there are a host of measures in place to help protect your cash. From Financial Services Compensation Scheme protection, to online encryption technology.
If you are undecided on whether to go for a cash or stocks and shares ISA a key consideration is interest rates.
"Right now interest rates
are about as low as they can get!"
With cash ISA provider instant access and fixed rate products offering sub 1% rates at the time of writing the challenge over time is that the buying power of your money will deteriorate due to inflation. As at July 2020 the Retail Price Index figure was measured at 1.6%.
The average 1 year fixed rate as at September 2020 was 0.44% (Source: Bank of England).
In real terms the average account holder in a 1 year fixed rate bond is losing money in real terms.
If you want to tackle inflation and you are happy to lock your money away for 5 plus years then you should seriously consider a stocks and shares ISA.
If you are trying to get the most out of your maximum allowance for an ISA you may be wondering what Aldermore ISA plans are currently available, at present they have a selection of Cash ISA options but do not have any Stocks & Shares products. When looking for an ISA it’s a good idea to shop around to see if you can find the top choice for your needs, you can use the table below to compare different kinds of ISAs from a selection of providers:
To be eligible for an ISA you must:
There are two different types of Individual Savings Account: Cash ISAs and Stocks and Shares ISAs which differ considerably from each other. ISA rules allow each eligible person to open up to one of each type of account each tax year. I you do decide to open both types of account however then you will need to break up your ISA allowance between the two because it stays the same.
It is possible to transfer an ISA to another provider; however some ISAs may give you a interest penalty for doing so. This means that while it can be a good idea to shop around and see if you could move to a better deal, before switching you should check that if the penalty for doing so would mean you would actually be better off sticking with your existing arrangements.
If you're thinking about saving or investing, an ISA (Individual Savings Account) is a great place to begin.
This simple guide will give you all the information and resources you need to get started. You'll learn:
Save for your first home and retirement
Compare Lifetime ISAs
Invest for your child’s future
15th March 2021
You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply".
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