The pick of the instant access Cash ISAs is the ING Direct Cash ISA, paying 3.00% AER. This rate is guaranteed for a minimum of 12 months and the interest is paid monthly. The account can be opened with a minimum of £1 and you are able to transfer previous years’ Cash ISAs into it. Just remember that after the 12 months, the rate will revert to their standard variable rate (currently 1%) so you will need to consider your options again at this time.
In the shorter term, the RBS 1 Year Fixed Rate Cash ISA is offering up to 3.35% provided you transfer in an existing Cash ISA (not including transfers from RBS or NatWest). The minimum deposit is £1,000 and you can apply online.
The medium to longer term fixed rate market is rather uncompetitive at present with little difference available in rates between 3 and 5 years. A rate of 4.20% is market-leading across both of these terms from NatWest provided you transfer an existing Cash ISA, or alternatively through Halifax’s 5 year Fixed Rate Cash ISA, with a minimum deposit of £500.
CASH ISA ALTERNATIVES
The current lack of competitive fixed rate Cash ISAs has greatly increased the interest in alternatives. Structured Deposits offer a combination of capital protection with the opportunity to receive a higher return (normally linked to the FTSE 100 Index). Since these are deposits, they are also eligible for the Financial Services Compensation Scheme.
For those looking for income, the Income Deposit Plan from Meteor offers 7.25% for each year the FTSE 100 remains between 4,250 and 7,000. The capital protection is provided by the Royal Bank of Scotland and transfers are accepted. Since this is held within a Cash ISA the income is tax free and compared to current longer term fixed rates of 4.20%, this is a considerable difference in potential upside.
For those looking for growth from their investment, there is a wide choice available. In the shorter term, Investec’s 3 Year Deposit Plan offers a 19% return provided the FTSE finishes higher than its starting level (subject to averaging), which equates to a compound return of nearly 6% a year.
In the medium to longer term, higher rates are also available. Investec’s FTSE 100 Kick Out Deposit Plan offers a return of 6.25% times the number of years the plan has been in place. The plan has a five year term but will mature early or ‘kick out’ from year 2 onwards provided the FTSE finishes higher than its starting value. As an alternative, Morgan Stanley’s Accumulator Deposit Plan locks in 6% for each year the FTSE ends higher than its starting value and also has a memory feature which allows you to catch up on any years which did not provide a return. The capital protection here is provided by LloydsTSB.
Finally, Legal & General’s Inflation Protected Deposit Bond offers a minimum return of 16% or, if higher, any increase in the Retail Price Index over the term. This plan is for those who want to hedge their savings against the effects of inflation and who are worried not so much about the next 12 months, but what could happen over the next 5 years.
All of the above plans will accept Cash ISA transfers. Click here to find out more about Fixed Rate Cash ISA Alternatives »
The Bonus Income Plan from Investec is a real stand-out. The plan pays a fixed income of 7.00% each year with an additional 0.50% bonus for each year the FTSE 100 is higher than its starting value. Capital is at risk if the FTSE drops by more than 50% during the plan, and the plan also has a monthly income option.
High yields are also available from investment funds but unlike the Investec plan, these returns are not fixed. Invesco Perpetual’s Monthly Income Plus fund has a current distribution yield of 7.19%* and pays income each month whilst Newton’s Higher Income fund has a historical yield of 7.02%* and pays quarterly. For a managed fund option, Invesco Perpetual’s Distribution fund has a distribution yield of 6.88%* and pays income monthly.
All of these funds have a 0.00% initial charge when invested through the Fair Investment Fund Supermarket and you can also transfer your existing funds at no charge.
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For those Investment ISAs offering a defined return, the most popular type of investment in the growth sector is the Kick Out plan which offers the opportunity to mature early, normally each year. The highest rate available is through Investec’s Enhanced Kick Out Plan which will return 13.5% per year (not compounded) should the FTSE finish higher at the end of the year than its starting value. Therefore, the FTSE only has to go up a little in order for the plan to mature early. Capital is at risk if the FTSE falls by more than 50% during the 5 year investment term.
For those looking for a defensive option, Morgan Stanley’s FTSE Booster Plan offers the potential for a fixed return of 60% (equivalent to approximately 8.25% per year compound) provided the FTSE does not fall by more than 20%. Capital is at risk but the plan also contains a unique booster feature which means a positive return can be achieved even if the FTSE falls by up to 50%.
For those looking for investment fund growth options, the Fair Investment Fund Supermarket has over 1,500 funds from more than 90 investment managers. Current highlights include M&G’s Recovery fund which focuses on UK equities and is AAA rated by Morningstar, S&P and OBSR**. Our global equity pick is Neptune’s Global Equity fund which has outperformed its benchmark by over 100% since launch and is also AAA rated by OBSR**.
We also provide you with our popular choices and our fund selections across a number of other sectors including Emerging Market funds, Ethical funds, Managed funds, Bond funds and Absolute Return. Our current selection includes Aberdeen’s Emerging Market fund which is top quartile over 1, 3 and 5 years and is AAA rated by OBSR*. Please visit our Growth Fund Selection for more details.
All of the funds detailed above have a 0.00% initial charge when invested through the Fair Investment Fund Supermarket and you can also transfer your existing holdings at no charge.
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Important Reminder - why do an ISA?
The main reason for using an ISA concerns the tax advantages, since no tax is payable on the income you receive or on any capital gains that you make and there is no need to declare any ISA income or capital gains on your tax return. ISAs therefore provide tax-efficient investment growth, the value of which is compounded over time.
For help and guidance at this important time of year, please see our Top 10 Tips for ISA season. Please also note that with all of these options, our experienced Investment Customer Services team is always on hand to answer any questions, either by email (email@example.com) or telephone on 0845 308 2525.
* data correct as at 31/01/2012
** data correct as at 31/12/2011
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.