Question:

I have delayed using my Cash ISA Allowance this tax year in the hope that Interest Rates would improve. Unfortunately they have not. I do not mind tying the money up for a few years but do not want to formally invest the money (e.g. in shares). Do you have any suggestions for what I should do?

Answer:

The best (highest interest rate) Cash ISA’s tend to be the long term fixed rates with a number of Banks/Building Societies (Leeds BS & Nationwide BS,) offering in the region of 4.50%pa if you are prepared to tie the money up for 5 years.

However, if you want instant access, you could expect a rate of about 2.50%pa. If you are prepared to tie the money up for 3 years then Investec Banks FTSE 100 3 year Deposit Plan 15 may appeal. This has a fixed term of 3 years and at maturity it will return your original deposit. In addition, if the FTSE 100 Index is higher than when the plan started, even if it is by only 1%, it will pay you an extra 19% which equates to an annual return of 5.97%.

If however, the FTSE is not higher, or it even plummets, your capital will still be returned but you will NOT receive any interest and inflation will have eroded the value of your deposit. If the FTSE 100 Index increased by more than 19% over the 3 years your return is still capped at 19%, in which case investing the money may have given a better return – but with increased risk.

The interest will be tax free under current rules, if held via an ISA. It is also available for Cash ISA Transfers and Direct Deposit (Non ISA). The minimum Deposit is very low at £1,500. This deposit is covered by the Financial Services Compensation Scheme (FSCS). You can surrender the plan early but you may get back less than your original deposit. Finally, there are a number of Banks (Alliance & Leicester, Santander) offering Instant Access Cash ISA’s with interest rates as high as 5.50% but these are conditional on you allocating an equal amount in to an Investment.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

Any reader interested in discussing this topic further can telephone Kirk Rice Accountants London on (UK) 01344 875000 or visit http://www.kirkrice.co.uk/ for information on accountancy issues or financial advice. Kirk Rice are Accountants based in London and Berkshire and can help businesses across the south east of the UK.

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