Fixed Rate Isa | Cash Isa

Variable rate accounts offer a simple solution for those who want to be able to access their cash at the drop of a hat but many make the mistake of choosing an account that looks good at the outset and then failing to monitor the rates going forward. The fact is that savings account providers can change rates whenever they like so those who prefer to put their money into an account and forget about it until it’s time to make a withdrawal could only be getting the benefits of the advertised rate for a few months.

Generally speaking the best rates can be found if savers are prepared to put their money into a fixed rate account for a set amount of time. It’s only really option if they can be sure that they won’t want or need to access their money during that period, though – some accounts won’t allow access to funds during the agreed term, while the ones that don’t will impose a stiff penalty.

The one worry many people have when thinking about locking in to a fixed rate savings account is the possibility that interest rates will suddenly jump after they’ve already agreed to commit their money to a the lower rate, meaning that they’re missing out on a better deal elsewhere.

The reality is, however, that it’s impossible for the layman to accurately predict what’s going to happen in the future with regard to interest rates and waiting around indefinitely to see what’s around the corner is counter-productive. Best indications suggest that the base rate will remain low for the foreseeable future so fixed rate looks like a good bet going forward for those who can afford to lock some money away for a set period and reap the long-term rewards.

Paul Roberts writes about money, investments fixed rate savings and the best savings rates.

Article Source: http://EzineArticles.com/?expert=Paul_Roberts

What is an ISA?

An ISA or Individual Savings Account is a type of account that allows you to earn interest on your savings, tax-free. You can save up to £5,100 each year in a cash ISA, with the limit set to increase in the 2011/12 tax year in line with inflation (I should say that although you can save a maximum of £5,100 each year into a Cash ISA, you can actually save up to £10,200 in total with a combination of a Cash and Stocks and Shares ISA. You can also invest the whole £10,200 in a Stocks and Shares ISA if you so wish).

Cash ISAs are available in most of the same formats as other, non-ISA savings accounts. There are Fixed Rate ISAs, ISAs that allow you instant access to your money, ISAs that require you to give notice if you want to withdraw your money, ISAs that pay bonuses, ISAs that allow you to save a regular amount each month, ISAs that play La Marseillaiseon the accordion… With so many different types of account, there should be a Cash ISA out there to suit your needs!

How can I check whether an ISA will pay me a better rate?

An ISA can allow you to earn more on your savings by virtue of the fact that no tax is charged, no matter what your tax band. So when comparing an ISA’s rate against a non-ISA you need to make sure you check the ‘right’ rates.

All non-ISA savings accounts display three rate types: an Annual Equivalent Rate (AER), a Gross rate and a Net rate. The Net rate is the interest rate the account will pay, less the 20% Income Tax that is deducted from the interest rate before you receive it.

So, if you are a Basic Rate Taxpayer you should compare a Gross ISA rate, against the Net rate of a non-ISA account (if you are a Higher Rate or Additional Rate taxpayer you have to pay more tax. But the Net rate of interest only takes into account the 20% of interest that your provider deducts from your interest, so you will need to deduct your actual tax rate – 40% for Higher Rate Taxpayers, 50% for Additional Rate Taxpayers – from the Gross rate).

How to work out your ‘real’ Net rate if you are a Higher or Additional Rate Taxpayer.

To work out the Net rate of interest on a non ISA account that you will actually receive if you are a Higher or Additional Rate Taxpayer, you will need to deduct your marginal rate of tax from the account’s Gross rate.

For example, a non ISA savings account you are looking at pays a Gross rate of 4.00%; the ISA you are comparing it against pays a Gross rate of 3.00%. You are a Higher Rate Taxpayer (you pay 40% tax).

So to work out the Net rate of interest that you would receive on your non-ISA account you should do the following:

4.00% (the Gross rate) – 40% (the amount you are taxed) = 2.40% (the Net rate)

So the ISA with a Gross rate1% less than its non-ISA competitor actually gives you more interest for your money, simply because there is no tax to pay!

And that’s the incredible power of the ISA. Tax-free savings accounts that can earn you a whole lot more interest, c’est magnifique!

Moneyfacts.co.uk is the leading independent financial information provider in the UK. Since 1988, we’ve been providing impartial information to financial services professionals which has helped thousands of customers get the best deal on their mortgages, savings accounts, credit cards, loans and other personal finance products.

http://www.moneyfacts.co.uk Limited is authorised and regulated by the Financial Services Authority (FSA).

Article Source: http://EzineArticles.com/?expert=Tom_Daniel_Richardson

Time to Go Fixed Rate?

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