2015 Cash and Investment ISA selections
With time running out to meet the 5th April end of tax year deadline, we bring you our selection of some of the best Cash and Investment ISAs available. We also include some alternative options for those who are seeking the potential for a higher return while still protecting their money, as well as our best-selling fixed income investment, for those considering investing their existing ISAs or new ISA allowance.
New ISA Rules – Save up to £15,000 in your cash ISA
As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put some or all of this allowance into an Investment ISA, or some or all of the allowance into a Cash ISA. Bear in mind that that these allowances are per person, so a couple can put up to £30,000 in total into a cash ISA before the end of the tax year. Make sure you remember the most important end of tax year deadline which is midnight on 5th April. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers.
2015 Cash ISA selections
Instant access Cash ISA selection
If you want to be able to access your money in an instant, the NatWest Instant Access Cash ISA offers a rate of 1.00% (variable) on balances of over £25,000, and a rate of 0.50% (variable) on balances below £25,000. Interest is paid monthly, and transfers in are permitted, meaning that if you transfer in cash from previous years’ ISA you may well be eligible for the higher 1.00% rate as your total amount held may be greater than £25,000. The account is easy to manage in branch, by phone and online, and is open to UK residents aged 16 and over.
Medium term Cash ISA selection
For those looking for a medium-term ISA option, the Aldermore 3 Year Fixed Rate Cash ISA offers a return of 2.20% (gross) with a minimum deposit of £1,000. Interest is calculated daily and can be paid either monthly or annually. Transfers from other ISA providers are available, and the account can be managed by phone, by post or online. You can withdraw cash early if you need to, but be aware that to do so means that you will be subject to loss of interest.
Longer term Cash ISA selection
For those savers who are happy to lock up their cash for longer with the aim of a higher return on their money, the State Bank of India 5 Year Fixed Rate ISA offers a return of 2.50% (fixed) for those who are prepared to put their entire £15,000 ISA allowance into the account for 5 years. Interest can be paid either annually or on maturity. Transfers are accepted, and the ISA account is fully covered by the FSCS (Financial Services Compensation Scheme). Applicants must be aged 18 or over, and no withdrawals are permitted before the end of the five year term.
Structured deposits – an alternative to fixed rate cash ISAs
With fixed rate interest options rather uninspiring at the moment, certainly if you compare to rates five years ago, many savers are likely to turn to alternatives this ISA season in order to make the most of their £15,000 ISA allowance.
One option that you may want to consider is structured deposits. These are essentially a combination of a deposit and an investment product where the return is not guaranteed, but rather dependent on the performance of some underlying investment, normally the FTSE 100 Index or a smaller number of FTSE 100 shares. While investing inevitably involves putting your capital at risk, the structured deposit offers the potential for higher returns but without risking your capital, thereby offering a middle ground for savers and the opportunity to enhance the overall returns from their capital.
They can also be used for both new Cash ISA money as well as Cash ISA transfers, and their deposit status means they are eligible for the Financial Services Compensation Scheme up to the normal deposit limits of £85,000 per person, per institution. Bear in mind that an arrangement fee normally applies to these plans.
Alternatives to medium/long term fixed rate cash ISAs
If you are looking for an alternative to medium/long term fixed rate cash ISAs, the Investec Kick Out Deposit Plan could be an attractive option to consider. A ‘Kick Out’ plan has the ability to mature early, normally from the end of year 2 of a five or 6 year term. The current version of the Investec Kick Out plan will mature at the end of each year from year 3 onwards, provided the value of the FTSE 100 Index is higher than its value at the start of the plan (subject to averaging), even if this is by just a single point. If it is, the plan will end and provide a return of 4.00% for each year (not compounded) – that’s a potential 12% in just 3 years. If the Index is lower on all of these dates, you will only receive a return of your initial deposit at the end of the six year term.
Alternatives to longer term fixed rate cash ISAs
If you are happy to lock up your cash for a longer period of time, the Investec 6 Year Deposit Plan offers a potential fixed return of 31% provided the FTSE 100 Index finishes higher at the end of the term than its value at the start (subject to averaging). So even if the Index finishes higher by only a small amount, you still receive 31%. The 31% return is equivalent to around 4.6% compound growth each year which is more than 2% higher than leading longer term fixed rate Cash ISAs. The downside is that the return is not guaranteed, and if the FTSE is lower you only get your initial capital back. This plan is not the same as a bank or building society deposit account and you may not receive your initial deposit in full if your capital is withdrawn early. The plan is designed to be held for the full term of 6 years and required a minimum single investment of £3,000.
2015 Investment ISA selection
Fixed income investment option
Whilst interest rates remain low and an increasing number start to feel the impact of receiving far less income than they may have enjoyed in previous years, particularly those previously reliant on fixed rate bonds, there is a rising trend of savers starting to consider investing some of their capital. This raises the difficult question of taking on more risk in an attempt to replicate historical levels of income and is obviously something which you should consider very carefully indeed, particularly if you are considering this for the first time with some of your ISA savings or new ISA money.
For those who are prepared to put their capital at risk in order to provide a higher fixed income, the Investec Enhanced Income Plan is our best selling income ISA, offering 5.28% fixed each year, paid to you regardless of the performance of the stock market in monthly instalments of 0.44%. The trade off for a fixed income which is well over double the rates available from longer fixed rate bonds is that your capital is at risk. This investment contains what is known as conditional capital protection which means that your initial investment will be returned in full unless the FTSE 100 Index falls by more than 50% during the investment term. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall. Therefore, this plan should only be considered if you are prepared to lose some or all of your capital.
Maximise your cash ISA allowance
With interest rates looking likely to remain low for quite some time, settling for the low returns on offer from fixed rate cash ISAs could prove extremely costly at a time when the need for income and growth from our savings is so high. Many savers have been led to take on more risk with some of their capital in the hunt for potentially higher returns. Whichever route you decide to take, with such a wide range of options available it is wise to consider all of your options very carefully indeed in order to make the most of your ISA allowance both for this tax year and the next. If you have any questions on how to apply please contact our Customer Services team on 0845 308 2525.
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. Tax treatment depends on your individual circumstances and may be subject to change in the future. ISA transfer charges may apply, please check with your provider.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.
Structured deposit plans are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to their future performance.