Fixed rate savings and the New Isa – which banks are setting the pace and should savers wait for better rates?

27th March 2014

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Our new savings columnist Kara Gammell looks at the High street banks that are embracing the expanded Nisa and what is means for savers. After the worst Isa season on record, savers were jumping for joy when the Chancellor announced that they could invest up to £15,000 a year in a “new’ Isa (Nisa) – all of which can be held in cash.

But for those savers who prefer the security of a fixed-rate deal, it looked like the celebration would have to be delayed, at least until the new allowance was introduced in July.

“Savers need to do their homework before they invest in a fixed-rate Isa for the new tax year or they could face a brick wall of disappointment,” said Rachel Springall, spokesman forMoneyfacts.co.uk. “The issue is, that the banks don’t have to allow further additions to their fixed deals.”

But savers can relax after news this week that Santander, Halifax and Skipton Building Society have announced that savers will still be able make the most of the full Nisa cash allowance of £15,000 in July, even if they opt for a fixed-rate deal earlier in the tax year.

According to the providers, between 6 April and the end of June savers can deposit the maximum cash Isa allowance of £5,940 into an account. Then from 1 July, when existing cash and stocks and shares Isas are merged to become Nisas, customers can top up to the new £15,000 subscription limit for the rest of the tax year.

However, bear in mind that while Santander and Halifax allow savers a two-month window to make deposits, Skipton customers will have to top up within the month of July to secure the fixed rate that the rest of their cash Isa deposit enjoys.

The new terms affect Santander’s two-year fixed rate Isa, which pays 2pc, while savers with a Santander current account or credit card will benefit from a slightly higher rate at 2.3pc.

Skipton’s one-year fixed-rate cash Isa (to 15 April 2015) pays 1.6pc for the annual interest option or 1.59pc if you prefer to get paid monthly, while Halifax offers an 18-month fixed-rate Isa which pays 2pc, a two-year deal at 2.05pc and a three-year offer at 2.25pc. Savers can choose to have their interest paid monthly or annually across the full range.

When it comes to Junior Isas it is a similar story where savers will be able to deposit up to £3,840 between 6 April and the end of June before topping up to increased allowance of £4,000 from 1 July.

The Halifax Junior Isa pays a market-leading 6pc (provided one parent holds an Isa with the bank – otherwise, 3pc), while Skipton’s current Jisa pays 3.02pc.

“It’s only a matter of time before the rest of the banks show their hand on Isa top ups,” said Ms Springnall. “But the market is likely to see the take up on Isa’s fall for the new tax year because many savers will now be sitting on the fence, waiting for July.”

Many savers may be confused about whether they should hang onto their cash until they can maximise the full allowance in July, while others may stall in order to gamble on locking in a better rate at a time when the banks are looking to attract the big money.

“It will be interesting to see if the 1 July offers a second bite at Isa season as it’s been pretty underwhelming so far,” said Susan Hannums, director at SavingsChampion.co.uk.

“Although it’s difficult to say if that will happen and I’m sure many savers will wait until July if they are considering fixed rates.”

However, Ms Hannums warned that it makes sense to consider putting the maximum £5,940 into your cash Isa as soon as possible in the new tax year and then top up in July – or else miss out on considerable interest.

“The sooner your money is earning tax-free interest the better,” she said.

And it is not just new money that requires savers’ attention. With 24 million Isa accounts in operation, savers with funds in an existing account are likely to be receiving a rate far lower current deals on offer. So it is vital that savers check the current rates paid on their Isas from previous years and be prepared to switch.

Kevin Mountford, head of banking at Moneysupermarket.com, said: “The majority of banks are not proactive when it comes to making sure you are on the best deal, so it pays to be savvy and not let them get away with it.”

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