4 yr fixed rate ISAs kick 5 year rates into touch

Category: Savings
Date: 10/28/2011

Fixed rate ISAs offer higher interest the longer you are prepared to not have access to your money – that's the accepted wisdom.

But Governor Money currently offers a 4 year fixed ISA that beats all the competition – including all 5 year fixed rates!

Reinforcing the need to shop around, the Governor Money Progressive BS 4 Year Fixed Rate ISA pays 4.50%, a full 0.15% more than the best 5 year ISA offered by Halifax.

Top 4 and 5 year fixed rate ISAs

	AER	Information
Progressive BS - 4Year Fixed Rate ISA	4.50%	Fixed until 4.11.15 0.50% paid until term starts on 4.11.11. While ISA transfers are allowed it can take up to 15 working days to transfer ISA monies across. So you are not guaranteed for your transferred funds to clear in time Minimum investment £100 Earlier access on closure only (subject to breakage fee) Not heard of Governor Money? Read more
Halifax ISA Saver Fixed - 5 Years	4.35%	Fixed for 5 years Minimum investment £500 ISA transfers in allowed Early access allowed on closure only (subject to 365 day loss of interest)
Halifax ISA Saver - 4 Years	4.30%	Fixed for 4 years Minimum investment £500 ISA transfers in allowed Early access allowed on closure only (subject to 320 day loss of interest)
Birmingham Midshires Fixed Rate ISA - 5 Years	4.25%	Fixed for 5 years Minimum investment £500 ISA transfers in allowed Early access allowed (subject to up to 365 day loss of interest) Monthly income option available
Information correct as of 28.10.2011

It's not even ISA season!

Usually ISAs are at their most competitive between the months of January and May, as banks and building societies focus on getting you to invest your money by the end/beginning of the tax year.

The period over the summer, to the end of the year is normally decidedly slow for ISA sales. So it's unusual to see such competitive 4 year ISAs from Governor Money and Halifax challenging the best 5 year rates.

But although 4.50% is a cracking rate given the current climate, it still doesn't get anywhere near beating inflation.

The alternative: inflation-linked ISAs

Inflation-linked ISAs can offer an alternative to the best fixed rates, albeit at a risk.

With inflation-linked accounts you are only guaranteed to earn changes to inflation over the term. So, if inflation goes down, and/or interest rates go up, these products may not look as enticing as they do now in a high inflation, low rate environment.

While your capital is not at risk, it's possible that the best long term fixed rate ISAs might outperform an inflation-linked product over the same period. Whether it does or not depends on what savings rates and inflation do over the next few years.

If you want to withdraw money from your inflation-linked ISA you will normally have to pay an early exit charge. This charge could mean that you get back less than you originally invested.

The only inflation-linked ISAs available:

	Rate	Information
3 Year Inflation Rate ISA (Issue 2)	October's RPI inflation rate + 0.25% gross	Until 19.12.14 0.50% paid until term starts on 19.12.11 Minimum investment £500 ISA transfers in allowed Earlier access allowed (subject to a 5% charge on the amount withdrawn).
5 Year Inflation Rate ISA (Issue 2)	October's RPI inflation rate + 0.50% gross	Until 19.12.16 0.50% paid until term starts on 19.12.11 Minimum investment £500 ISA transfers in allowed Earlier access allowed (subject to a 5% charge on the amount withdrawn).
Protected Capital Account - Inflation Linked 9	100% of the growth in RPI between September 2011 and September 2017 + original investment returned	Until 30.11.17 Minimum investment £3,000 ISA transfers in allowed Early access allowed on closure only (subject to Early Exit Fee). Depending on when you exit you may get back less than you originally invested.
Information correct as of 28.10.2011

No new money to put in an ISA? No worries!

So long as you haven't opened a new cash ISA in the 2011-12 tax year (6 April 2011 – 5 April 2012), you can transfer existing cash ISA funds to a new cash ISA. This means that even if you've got no new money to save into your ISA right now, you could still get your existing pot working harder.

One word of warning here: fixed rate ISAs and inflation-linked ISAs will only let you invest money while the current issue of the product is open – that is to say, while it's generally available. After that, you're unable to make further additions.

If you open a new fixed or inflation-linked ISA now, just to transfer your existing ISA, you won't be able to open another and invest more before 6 April 2012. So if you're expecting a bonus in December or January for instance, you may want to wait until you have that money to invest before opening a new cash ISA.

You can put up to £5,340 into a cash ISA in the 2011-12 tax year, rising to £5,640 in 2012-13.

What next?

Compare the best cash ISAs for transfers

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.