Best Cash ISA for 2016-17, 4% Help to Buy and P2P 9% Alternatives?
Personal_Finance / ISA's Apr 07, 2016 - 04:52 AM GMTBy: Nadeem_Walayat
Good news, its a new tax year which means savers can deposit upto £15,240 into a tax free cash ISA savings account. Now for the bad news, the banking syndicate's cash ISA rates continue to be relentlessly ground down towards ZERO, where each new tax year tends to see worsening rates offered and this year is no different, Worse still is that Britains banks tend to further penalise ISA savers by typically paying LESS interest than on the SAME term NON ISA account, which makes a mockery of the large annual ISA allowances of £15,240, which means its near impossible to find a rate even half the 5% that could be secured in the pre-funding for lending scheme days (July 2012).
The table below further illustrates what has happened to cash ISA rates offered by apparently often reported on as best buy accounts of the tax payer bailed out Halifax mega-bank that in reality has seen rates crash in response to the Bank of England's Funding for Lending Scheme that started in July 2012.
| Halifax ISA's | May 2012 | Sept 2012 | Nov 2012 | Mar 2013 | May 2013 | July 2013 | Mar 2014 | June 2014 | Mar 2015 | April 2016 | % Cut |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Instant Access | 3% |
2.75% |
2.35% |
1.75% |
1.35% | 1.35% | 1.5% | 1.30% | 1.05% | 0.60% | -80% |
| 1 Year Fix | 2.25% |
2.05% |
2.05% |
1.75% | 1.75% | 1.65% | 1.5% | 1.40% | -38% | ||
| 2 Year Fix | 4.00% |
3.25% |
2.25% |
2.5% |
2.10% | 2.10% | 2.05% | 1.8% | 1.65% | 1.25% | -68% |
| 3 Year Fix | 4.25% |
3.75% |
2.35% |
3.00% |
2.25% | 2.25% | 2.25% | 2% | 1.75% | -59% | |
| 4 Year Fix | 4.35% |
3.80% |
2.40% |
3.05% |
2.30% | 2.30% | 2.40% | 2.10% | 1.85% | -57% | |
| 5 Year Fix | 4.50% |
4.15% |
2.60% |
3.10% |
2.35% | 2.35% | 2.5% | 2.20% | 2.00% | 2.00% | -55% |
The table shows that the tax payer bailed out Halifax continues to across the board pay abysmally poor rates of interest.
Interest Rates 2016, 2017
Before coming to the best rates on offer, it is a good idea to be reminded of the prospects for UK interest rates over the next couple of years.
06 Feb 2016 - UK Interest Rates, Economy GDP Forecasts 2016 and 2017
UK Interest Rates Conclusion
Therefore the overwhelming picture is one of the Bank of England continuing to kick the interest rate can down the road for the whole of 2016 and probably for the whole of 2017 too, even if inflation rises to above 2%. Where even a BrExit induced mini-sterling crisis is unlikely to prompt the BoE to shift on UK interest rates. Especially as I expect the UK economy to significantly weaken to an average GDP of 1.6% per annum that compares against BoE expectations of 2.6% per annum.
The bottom line is that a paralysed BoE remains terrified of its banking brethren that could yet go bankrupt again, especially given Britain's continually expanding debt mountain, and thus will only hike rates when it is faced with an even worse crisis. In fact odds probably favour a CUT in interest rates rather than a RISE, maybe even going negative, though negative interest rates just do not work because they act as a tax on the economy instead of a stimulus.
Market Implications
Low borrowing costs and savings interest rates are likely to continue to persist for the next 2 years. Therefore savers should eye fixes of at least 2 years for higher rates. Bank customers also need to be aware that there is a real risk of NEGATIVE interest rates, which means the BANKS will STEAL a percentage of your bank deposits each year. That's right, the banks take your bank deposit, loan it out at 5%, 10%, or 20% and then will CHARGE you for allowing them to do so with your money. If this is not the behaviour of crime syndicate then what is it?
So expect a continuation of the bleak trend for falling savings rates for at least the next 2 years and so one should seek to fix for a minimum of 2 years, and probably longer to secure a rate of over 2%.
Current Best Cash ISA for 2016-17
Having trawled many ISA issuers that like the Halifax typically offer less than 2% for multi-year fixes, the only banks that really stand out or United Trust Bank and United Bank offering fixed of 2.33% and 2.35% for FIVE YEARS! Yes that is a very long time, but this is the dire state of t Britain's savings market where to get a half way decent rate one needs to fix for FIVE YEARS! Yes I know there are others that pay marginally such as the Punjab bank 5year 2.5% fix where the problem is one has to visit a distant branch, for what? an extra £20 per year? And similar holds true for other providers with their obnoxious small prints.
- Easy Access - Coventry Building Society 1.4%
- 1 Year Fix - Kent Reliance 1.45%
- 2 Year Fix - Kent Reliance 1.65%
- 3 Year Fix - Aldermore 1.85%
- 4 Year Fix - Julian Hodge Bank 1.85%
- 5 Year Fix - United Bank 2.33%
Yes, I know the rates are pretty poor, but what can one do? This is what happens when the Bank of England supports its banking brethren for 8 years with printed money! all backed by Britain's tax payers .
So what are the alternatives to the traditional cash ISA's ?
Help to Buy ISA
George Osborne's Budget 2015 contained his latest boost to UK house prices in the form of the Help to Buy ISA (savings account), that for every £200 saved will have £50 added to by the government i.e. a 25% government house buying deposit subsidy that currently converts into a maximum of £3,000 per prospective home buyer (£12k total deposit) that I am sure will be raised annually, and which for couples implies an current £6k subsidy.
So if your a prospective first time buyer seeking to build up a deposit then clearly this is the route to follow. Also a number of providers currently pay 4% interest.
Junior ISA's
Another way of beating the savings interest rates drought is by parents depositing cash into their children's Junior ISA's that typically pay over 3% per annum (Coventry BS 3.25%).
P2P Cash ISA
A new type of ISA becomes available this tax year, one based on peer to peer lending (P2P), and the rates on offer are very, very enticing, which depending on risk selection range from 4% to as high as 9%. However, the key word here is RISK. Your capital is at RISK as you or NOT covered by the FSCS compensation scheme. So whilst the P2P's masquerade as ISA's in reality they should NOT be classed as ISA's that tends to mislead savers into thinking they are as safe as Cash ISA's. Instead the fundamental fact is that you could lose some or even most of your capital, especially if the companies you make loans to go bust!
In fact if you want to take risks with your capital then the far better route would be a stocks and shares ISA, at least then you are likely to be properly rewarded for the risk you are taking, as 4% or even 9% is just not enough to set against the risk of potentially losing between 10% and 50% if things go wrong.
New ISA Rules
A reminder that Cash ISA savers can now withdraw and re-deposit funds into their current years Cash ISA without effecting the current tax years ISA allowance.
So clearly where Cash ISA's are concerned the only winning accounts are those for first time buyers who are handed a 25% tax payer hand out. Whilst for the rest it would probably be wise to at least consider utilising at least some of this years ISA allowance in a stocks and shares ISA, or better still a personal pension plan that at least would receive tax relief of 20% or 40%.
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By 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, 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.
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