Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off
Personal_Finance / ISA's Jun 24, 2017 - 06:01 AM GMTBy: Nadeem_Walayat
According to the mainstream press there are emerging signs of life in the UK savings markets as the new tax year has kicked into gear, finally offering some hope to Britain's savers after a near 5 years of a catastrophic downward death spiral in UK interest rates, one of being ripped off by the tax payer bailed out banking crime syndicate that for the duration has continued to bank bonuses on the basis of artificial profits engineered by the Bank of England in an attempt at recapitalisng the bankrupt banks all whilst the savers continue to suffer and pay the price in terms of loss of purchasing power of savings by means of sub inflation interest rates.
UK Savings Interest Rates Collapse
My tracking of the Halifax Cash ISA's illustrates the relentless collapse in UK savings interest rates. Firstly, the Halifax Mid 2016 withdrew virtually all of their fixed rate ISA accounts. However, to continue with this long standing series for when longer duration ISA fixed rates return, I have applied the percentage change on the 1 year fixed rate to fixes for preceding longer duration terms (in red) to illustrate what has happened to the UK savings market.
| Halifax ISA's | May 2012 | Sept 2012 | Nov 2012 | Mar 2013 | May 2013 | July 2013 | Mar 2014 | June 2014 | Mar 2015 | April 2016 | Aug 2016 | Nov 2016 | Feb 2017 | June 2017 | % Cut |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Instant Access | 3% |
2.75% |
2.35% |
1.75% |
1.35% | 1.35% | 1.5% | 1.30% | 1.05% | 0.60% | 0.40% | 0.35% | 0.35% | 0.28% | -91% |
| 1 Year Fix | 2.25% |
2.05% |
2.05% |
1.75% | 1.75% | 1.65% | 1.5% | 1.40% | 0.90% | 0.65% | 0.65% | 0.6% | -77% | ||
| 2 Year Fix | 4.00% |
3.25% |
2.25% |
2.5% |
2.10% | 2.10% | 2.05% | 1.8% | 1.65% | 1.25% | 1.06% | 0.75% | 0.75% | 0.6% | -85% |
| 3 Year Fix | 4.25% |
3.75% |
2.35% |
3.00% |
2.25% | 2.25% | 2.25% | 2% | 1.75% | 1.125 | 0.80% | 0.80% | 0.64% | -85% | |
| 4 Year Fix | 4.35% |
3.80% |
2.40% |
3.05% |
2.30% | 2.30% | 2.40% | 2.10% | 1.85% | 1.19% | 0.86% | 0.86% | 0.69% | -84% | |
| 5 Year Fix | 4.50% |
4.15% |
2.60% |
3.10% |
2.35% | 2.35% | 2.5% | 2.20% | 2.00% | 2.00% | 1.28% | 0.92% | 0.92% | 0.74% | -84% |
Unfortunately for those already or seeking to save with the Halifax then there is NO SIGN of recovery from the ISA INTEREST RATES CRASH CATASTROPHE! The Halifax continues to throw scraps off its table to it's Cash ISA savers, this whilst the UK inflation rate has soared to 3.7% RPI and 2.7% CPI! Which means that the Halifax is definitely one of the top tax payer bailed out banks to avoid!
Cash Best ISA 2017
Whilst the Halifax is a big fat fail, so are there any cash ISA providers that are managing to come anywhere near matching CPI inflation?
- Easy Access - Virgin Money 1.05% - 3 withdrawals per year.
- 1 Year Fix - Aldermore 1%
- 2 Year Fix - UBL 1.36%
- 3 Year Fix - UBL 1.44%
- 5 Year Fix - UBL 1.93%
Note UBL accounts can be a pain to open i.e. sending forms, docs and cheque's by post. So your cash can be sat on account earning zero interest for nearly 3 weeks, whilst UBL processes your application.
Current CPI is at 2.7%, so NO, ALL of the ISA providers are a big fat FAIL for not coming anywhere near even matching CPI Inflation let alone RPI at 3.7%! This is what happens when the Bank of England supports its banking brethren for over 8 years with printed money! all backed by Britain's sucker tax payers who continue to be fleeced of the purchasing power of their hard earned savings. The solution of course is to invest in assets that are LEVERAGED to central bank money printing, such as housing and stocks as I have covered extensively in over 1000 articles and videos over the years.
Kent Reliance and the GREAT CASH ISA RIP OFF!
Simply, cash ISA savers are being ripped off by ALL providers! For example pick any provider at random and you will see that the provider significantly under pays interest on the ISA accounts against the none ISA accounts for the same TERM.
For instance Kent Reliance pays 1.80% on its 2 year fixed rate bond, and 1.7% on its 1 year fixed rate bond. Whilst Kent Reliance pays just 1% on its 2 year fixed rate ISA and just 0.9% on its 1 year fixed rate ISA i.e. Kent Reliance is paying nearly HALF the interest rate on ISA accounts than on the same term none ISA accounts!
There is NO justification for this ! 1% paid to 2 year fixed rate ISA savers, whilst paying 1.8% to none ISA savers. IS A RIP OFF!
Again this is just one provider plucked at random for the truth is all of the banks and building societies are ripping off their cash ISA savers, who like sheep are being led to the slaughter of the value of their life-time of savings.
Alternatives to Traditional Cash ISA's
So what to do if savers are determined to retain a sizeable rainy day cash savings fund?
Well that depends on ones age and family circumstance, for instance -
1. Do you have children?
2. Are you under 40 ?
3. How close are you to 55 years of age or already beyond?
Child / Junior Cash ISA's
Whilst one will be very lucky to find a cash ISA account that pays more than 2% today, i.e. the best I can see out there is 1.93% for a 5 year fix! That's right! FIVE YEARS! In my opinion any savings account that pays less than RPI amounts to stealth THEFT, and with RPI currently at 3.7% that means every savings account being sold today guarantees the theft of the value of ones savings!
However there is a glimmer of hope for people with children, in fact children under the age of 18 can be utilised to park long-term savings with tax free! AND the rates typically double the adult rate! For instance the current best rate is with the Coventry ISA that pays 3.25% per year!
Key points are that there is a deposit limit of £4,128 per tax year and the funds cannot be accessed until the child turns 18. Oh and the money belongs to child, so you have to factor in whether ones sweet 13 year old will become a rebellious 18 year old and decide to blow the money on a fast car or worse drugs!
Life Time ISA's (LISA)
LISA's are George Osborne's (remember him?) March 2016 bribe to savers / cash give away that went live in April 2017. Unfortunately only available to the UNDER 40's! For every £4k (max) deposited each year the government will top the LISA up with a £1k bonus or 25%. That's potential free money from the government of £32k! from Age 18 to 50. WITH interest on top! Albeit today's interest rates of 1% are rubbish.
However there is a catch. The money can either only be used to buy ones first home, OR be locked in until Age 60! So it really is a long-term inflexible savings vehicle. But in my opinion very much worth it as part of a savings portfolio!
There is also the Help to Buy ISA, but that only results in a maximum bonus of £3k. However you could have BOTH a HTB and LISA but you can only utilise ONE to buy your first home, which means the HTB and thus would be locked into the LISA until age 60. However you can transfer EXISTING HTB's into a LISA as of April 2017.
Pension Contributions
And finally if your nearing the minimum age for drawing down on private pension pension at age 55 such as the SIPPs. Then you could look to top up your pension fund and the tax man will ADD to it at your highest tax rate!
For everyone, no matter whether one pays any tax or even works the minimum top up is 20% i.e. for a £1k contribution one would deposit £800 and the tax man will top it up with £200, that's a 25% instant return on ones deposit!
Whilst a 40% tax payer for a £1k contribution would only need to deposit £600, with the tax man topping up with £400, thus an instant 66% return on ones deposit.
Of course the money is taxable when drawn, and would need to be invested of which the safest asset class would be short-dated bonds.
So there you have 3 methods towards alleviating Britain's savings crisis. All of which need careful thought before entering into and are best part of an overall portfolio of long-term savings strategy so as to retain flexibility whilst maximising return on ones capital.
By Nadeem Walayat
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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