Newcastle BS Pulls 2.9% Fixed Cash ISA, Coventry and Leeds Currently Offer Best ISA's
Personal_Finance / ISA's Mar 26, 2014 - 07:23 AM GMTBy: Nadeem_Walayat
Newcastle BS has pulled its market beating 2.9% 5 year fixed rate cash ISA that in my opinion amounted to the best cash account for some 18 months for the reason that it behaved more like a higher interest paying instant access rather than a typical fixed rate account.
My article of 12th March 2014 (Newcastle BS 2.9% Best Current Fixed Rate Cash ISA March, April 2014 ) explained the reasons why the Newcastle 2.9% 5 year fixed rate Cash ISA was one of the best cash ISA accounts on the market for a good 18 months -
- Five year fixed rate of 2.9% per annum.
- Withdrawals including transfers out are permitted subject to 120 days loss of interest ONLY on the monies withdrawn.
- Fixed until March 2019
- Allows deposits and transfers in as long as the issue remains current (open).
The key point is that the account allows withdrawals with the loss of 120 days interest, which changes the nature of the account as it is no longer behaves as a 5 year fixed rate account but instead a very high rate of interest paying instant access account that pays 2.9% with a withdrawal fee of 0.96%, that allows for capital to be transferred out at any point during the next 5 years when interest rates rise!
However, this means cash ISA savers who had started the transfer process may now find their funds deposited into an account with both a lower rate of interest far worse conditions attached.
The Newcastle BS website now lists the 5 year fixed account as having the following terms :
- Five year fixed rate of 2.75% per annum.
- Withdrawals including transfers out are permitted subject to 180 days loss of interest ONLY on the monies withdrawn.
- Fixed until May 2019
- Allows deposits and transfers in as long as the issue remains current (open).
Whilst on face value this may suggest only a minor drop of 0.15%, however the following table better illustrates the actual overall impact of the difference per year of the current ISA account against that which preceded it.
| Year | Newcastle Effective rate Old | Newcastle Effective rate New | Worse off by per year |
|---|---|---|---|
| 1 | 1.97% |
1.375% |
-0.59% |
| 2 | 2.42% |
2.05% |
-0.36% |
| 3 | 2.58% |
2.25% |
-0.28% |
| 4 | 2.66% |
2.40% |
-0.25% |
| 5 | 2.9% |
2.75% |
-0.15% |
The account now defeats its primary purpose which was to earn a high rate of interest (as far are current abysmal rates go) whilst offering a facility to transfer out early after just 1 or 2 years following a rise in interest rates with an acceptable cost of 120 days lost interest. Now those seeking to transfer out after 1 year will be near 0.6% WORSE OFF.
Current Best CASH ISA
In my opinion the current best cash ISA is now being offered by the Coventry BS which pays 2.75% for a 3 year fix that also carry's a early withdrawal fee of 120 days loss of interest. However unlike the original Newcastle BS account the Coventry ISA does not allow transfers in.
| Year End | Coventry BS Effective rate |
|---|---|
| 1 | 1.85% |
| 2 | 2.3% |
| 3 | 2.75% |
For those seeking to transfer funds presently the best account is from the Leeds BS 2.8% 5 year fixed rate with a 180day loss of interest on early withdrawls. What swings it in Leeds direction is that upto 25% of the funds can be withdrawn without penalty which means the effective loss of interest loss is reduced to 135 days.
| Year End | Leeds BS Effective rate |
|---|---|
| 1 | 1.75% |
| 2 | 2.27% |
| 3 | 2.45% |
| 4 | 2.54% |
| 5 | 2.8% |
Summary of ISA Rules & Benefits
- The ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 3% cash ISA for standard rate tax payers is 3.6%. For higher rate tax payers it is 4.2%.
- The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
- The Allowance for 2013-14 is £11,520, £5,760 for cash and £5,760 for shares ISA's or the whole £11,520 into a shares ISA.
- You can only open ONE New cash ISA per tax year, and you can add new monies to One Cash ISA per tax year (see transfers). Similarly you can open only one new Shares ISA per tax year.
- You do not have to open a Cash ISA with your existing provider, i.e. you can open an account at different providers every year.
- Most providers allow for transfers in. And ALL should allow you to transfer out.
- Once you withdraw from a Cash ISA you cannot then then re-deposit into. The £5,760 limit refers to total deposited, and not maximum account balance. So if you deposit £5,760, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £5,760 deposit limit.
- To maximize your tax free interest, it is best to open your account at the start of the tax year.
- The Financial Services Compensation Scheme (FSCS) guarantees the first £85,000 (Euro 100,000) per person, per banking licence . Those with sizable savings that total more than £85,000 should ensure that their institutions really are separate, especially given the banking crisis forced mergers.
- There is the facility to transfer Cash ISA monies into Shares ISA's but NOT from Shares ISA's to Cash ISA's .
- Next years Cash ISA allowance (2014-15) as mentioned earlier from 1st July 2014 will be boosted to a massive £15,000, which compares to what it was scheduled to rise to inline with CPI inflation of £5,940. Additionally shares ISA's will be able to be converted into Cash ISA's.
Source and Comments: http://www.marketoracle.co.uk/Article44962.html
Nadeem Walayat
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Nadeem Walayat has over 25 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, stocks, housing market and interest rates. 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.
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