As the end of the tax-year draws ever closer, there will undoubtedly be many savers who have not yet opened their Cash ISA (Individual Savings Allowance) for the 2016/17 tax-year.
There’s no doubt that the introduction of the Personal Savings Allowance, which will be available to us all from 6th April 2016, will shake up the savings market, but we still believe Cash ISAs will have their place.
So, if you’ve not yet used your Cash ISA allowance, here’s our guide to the best deals currently available and three alternatives if you can’t get too excited about current interest rates!
Instant Access Cash ISA
If you want to stay nimble, and perhaps take advantage of the new Flexible ISA rules without tying up your savings, an Instant Access Cash ISA could make sense.
Assuming you want online access, and it seems most people do these days, the best rate from a widely available ISA is the Post Office Money’s Online ISA, which currently pays 1.45%, although this includes a bonus of 0.80% for the first 12 months, so be prepared to shop around in a years’ time for a better deal.
The account can be opened with just £100 and interest is paid annually.
One-year Fixed Rate Cash ISA
If you are prepared to tie your savings up for a year you will get a slightly better rate.
The top one-year fixed rate Cash ISA is currently from Al Rayan Bank and pays 1.90% per year.
The account can be opened online and the minimum needed is £1,000.
Whilst Al Rayan Bank are members of the UK Financial Services Compensation Scheme (FSCS), some savers may well be nervous about depositing funds with a bank they have not heard of before. The best rate from a ‘high street’ name is 1.50% from Virgin Money; only 0.05% more than the Post Office Money Online ISA in return for tying your savings up for a year.
Two-year Fixed Rate Cash ISA
Tying your savings up for two years will reward you with an interest rate of 2% from State Bank of India, which is again a member of the UK FSCS.
The account can be opened online, although the minimum starting balance of £5,000 is relatively high.
If you prefer a ‘high street’ name, the Nottingham Building Society is currently paying 1.85%, although you will need to go into a branch to open the account.
Cash ISA alternatives
It’s fair to say that the interest rates currently available on Cash ISAs are not hugely attractive and they show no signs of rising at any time soon.
So, what are the alternatives? Here’s three:
Savings account: From 6th April 2016 basic rate taxpayers will be able to earn interest of up to £1,000 per year without paying tax; this drops to £500 for higher rate taxpayers.
In most cases a traditional savings account currently pays a slightly higher interest rate than the comparable Cash ISA.
If you are confident that the new Personal Savings Allowance is here to stay, using a traditional savings account may give you slightly more interest, providing you stay within the £1,000 and £500 limits.
Investing: The traditional alternative to saving is investing, ideally in a diversified portfolio of funds, which matches your attitude to risk.
Investing is of course riskier than saving, the value of your capital can fall, substantially at times. Although, the aim is of course to get a better return over the longer term.
If you are new to investing, we would always recommend you seek professional, independent, financial advice before proceeding; a mistake could be costly.
Peer to Peer lending: This option has been around for a number of years and the sector is becoming more mature, although it isn’t without its troubles.
Essentially peer to peer lending matches borrowers with investors and can produce a higher return than a traditional savings account.
However, your capital is at risk if borrowers default and peer to peer lenders are not covered by the UK FSCS as banks and building societies are.
Again, if you are in any doubt as to whether this is the right option, take advice.
We are here to help
If you would like to look at alternatives to Cash ISAs we are Independent Financial Advisers and are here to help.
For more information and advice, call Bev or Sarah on 0115 933 8433 or email info@investmentsense.co.uk
