Best Cash ISA April 2018 - Last Chance Before for End of Tax Year!
Personal_Finance / ISA's Apr 01, 2018 - 07:22 PM GMTBy: Nadeem_Walayat
This is your last chance to capitalise on your 20k annual tax free Cash ISA savings allowance, and I am sure many savers are buoyed by mainstream financial press coverage of warnings of rising UK interest rates as the Bank of England is expected to continue hiking UK base rates as it plays the game of follow the US Federal Reserve Bank leader by withdrawing some of its support for its banking sector brethren such as the funding for lending scheme that resulted in a catastrophic collapse in UK savings interest since its start in mid 2012. Which has resulted in UK savers being literally ripped off by the tax payer bailed out banking sector, the duration for which the banks that have 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 savers continue to suffer and pay the price in terms of loss of real terms purchasing power of savings as inflation continues to erode the hard earned wealth of Britain's savers.
UK Interest Rates
The following graph illustrates the collapse in market interest rates following the implementation of the Bank of England's funding for lending scheme and also shows the most recent up tick in UK market interest rates as the UK plays follow the US Fed leader.
So whilst interest rates are trending towards normalisation. However they have a LONG way to go to get even to the half way point which is where the market was in 2012. So the current up tick to 1% is still a pittance of where interest rates should be especially given the current ongoing spike in inflation.
UK Savings Interest Rates Collapse
My tracking of the Halifax Cash ISA's further illustrates the relentless collapse in UK savings interest rates. Firstly, the Halifax in Mid 2016 withdrew virtually all of their fixed rate Cash ISA savings accounts. However, to continue with this long standing series for when longer duration ISA fixed rates returned to the market, I applied the percentage change on the 1 year fixed rate to fixes of longer duration terms (in red) to illustrate what has happened to the UK Cash ISA 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 | Feb 2018 | Mar 2018 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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% | 0.35% | 0.35% |
| 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% | 0.5% | 0.75% | ||
| 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% | 0.6% | 1.00% |
| 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% | 0.7% | 1.50% | |
| 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% | 0.8% | 2.00% | |
| 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% | 1.00% | 2.25% |
Up until early March 2018 there had been no change in the Halifax ISA offerings of abysmally poor rates, literally paying a mere pittance to ISA savers especially when compared against soaring inflation to over 4% RPI and 3% CPI! Which means that the Halifax was definitely one of the top tax payer bailed out banks to avoid! However, very recently, the Halifax introduced two new ISA's, the 2 year fix at 1.00% and the 5 year fix at 2.25%. Now look closely at the above table because in February the Halifax was paying just 1% for a 5 year fix! NOW barely a few weeks on it is paying 2.25%! So definitely the Halifax is demonstrating that UK savings interest rates ARE RISING.
Meanwhile inflation has finally started to dip towards my trend forecast of reaching 3% RPI by mid 2018, which is still substantially above what the likes of Halifax will probably be paying by that time.
Cash Best ISA April 2018
So the Halifax has decided to place itself back into the competition with its 5 year fix of 2.25%, which is still nowhere near current RPI of 3.6%. What about the rest of the ISA market? Having scoured the market then these are the current savings accounts that stand out in terms of being the least worst ISA saving accounts to cope with UK inflation.
| Term | Interest Rate | Provider | Comment |
| Instant | 1.20% | Nottingham BS | Allows Transfers In |
| 1 Year | 1.35% | Leeds BS | Allows Transfers In |
| 2 Year | 1.72% | Principality BS | Allows Transfers In |
| 3 Year | 1.87% | UBL | Allows Transfers In |
| 5 Year | 2.25% | Halifax | Allows Transfers In |
With CPI hovering near 3%, then NO, ALL of the ISA providers are a big fat FAIL for not coming anywhere near even matching CPI Inflation let alone RPI of 3.6%! 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 past decade.
The bottom line is that UK interest rates ARE rising but the savings interest rates are NOT, in fact several such as Virgin money have CUT RATES this year. Another is Leeds BS which was paying 1.85% a few weeks ago on a 3 year fixed rate ISA but that has now been cut to 1.70%.
Therefore it would appear to be unwise to fix rates for MORE than 1 year, and definitely NOT for 5 years at this point in time, as logic dictates that 'eventually' UK savings rates should start to rise to reflect market rates i.e. I would expect the 5 year fixes by the end of 2018 to be offering at least 3% rather than the present best of 2.25%. Though that depends on what the Bank of England gets upto behind the scenes in support of its banking sector brethren.
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 2.5% today, i.e. the best I can see out there is 2.25% 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 4% 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 3.5% 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.
Failing that you could just opt to spend your savings rather than subsidise the banks, for instance now still remains as one of the better times of the year to buy a used car in the UK.
By Nadeem Walayat
Copyright © 2005-2018 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
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.
Nadeem Walayat Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
