Our savings and ISAs expert, Rachel Thrussell has over 30 years experience in the financial services sector and is the leading independent expert on UK savings products. Rachel's views are in constant demand from both the industry and the press. 

Below are the latest questions and answers that Rachel has provided to our visitors. 

I have looked at a comparison site that shows fixed term ISA rates as high as 8%. They seem too good to be true. Have you any advice about these types of investment?

There are several fixed term ISAs available that claim to offer rates of up to 8%, but you’re right in thinking that these rates seem too good to be true – they tend to be investment or innovative ISAs, rather than cash-based savings accounts, and the level of risk heightens accordingly.

These accounts boast such high rates because they invest your savings in higher-risk enterprises, such as by using the money to fund corporate or peer-to-peer loans. Because of the higher risk involved, there’s no guarantee – if the end customer defaults and the company is unable to recover the funds, there’s the chance you could lose your investment. These firms aren’t covered by the Financial Services Compensation Scheme, either, so if that were to happen, there wouldn’t be any recourse.

That said, some savers with a higher risk appetite may be tempted by these accounts, but for those who want security, cash-based savings may be your best bet.

Seeing as regular savings accounts tend to pay better rates of interest than most other accounts, are you allowed to open more than one?

Regular savings accounts can, indeed, pay interest rates as high as 5%, but because of the generosity of the returns on offer, there are usually strict upper limits on the amount of money that you can put into these accounts each month.

It is therefore no surprise to learn that most banks and building societies will only let customers have one regular savings account running at any one time. However, as there are no official rules to this effect, such as with ISAs, the simple way to get around this is by opening accounts with different providers. In this case, you can in effect have as many as you like, provided you’re happy to keep up with the requirements of each account.

If you can afford to lock your savings away for 12 months or longer, a one year fixed rate bond can earn you more interest than other types of savings accounts. 

Are there any savings accounts available that British expats can open if they live in the EU? Most savings accounts specify UK Resident only. I know that you can open offshore accounts, but I am a UK passport holder and would, if possible, prefer to save with a UK institution.

There are several institutions that have savings accounts specifically designed for UK residents living overseas, but as you rightly point out, these are offshore accounts, with all onshore accounts requiring savers to reside in the UK. Unfortunately, the only option available to UK expats would therefore be to open an offshore account, though it’s still possible to save with a UK institution – many of the UK’s biggest banking brands have an offshore arm, so you can get the reassurance of saving with a well-known name even though you’re overseas.

Why should I invest in an ISA when I can earn up to £1,000 in interest tax-free in other accounts?

However, this doesn’t mean that ISAs should be completely overlooked. For one thing, the tax-free allowance falls to £500 for higher rate taxpayers, and additional rate taxpayers don’t get any. Then there’s the fact that ISAs remain tax-free regardless of how much is saved, so if you add to your pot each year and build up a hefty sum, you need never worry about breaching your allowance.

It’s true that the launch of the Personal Savings Allowance (PSA) in 2016 brought the vast majority of savers out of savings tax, with basic rate taxpayers able to earn up to £1,000 in interest each year without paying tax on it, regardless of where it’s saved.

And what about if savings rates continue to rise? You may need a lot saved to hit the £1,000 limit at present, but if rates were substantially higher, even a small savings pot could breach it, making ISAs all the most important.

Why do you sometimes say that an account will pay an expected profit rate? What does this mean?

The accounts that pay expected profit rates are Sharia’a-compliant savings accounts, which do not pay interest due to this being against Islamic law. Instead, depositors’ funds are invested into a Sharia’a-compliant activities, avoiding prohibited businesses such as alcohol, tobacco and gambling. As there is always an element of risk with investments, Sharia’a banks cannot therefore guarantee a rate of return.

However, Islamic banks mitigate this risk in many ways, so that the customer’s deposits and return do not suffer. For instance, BLME states that is a customer’s deposit is not producing the agreed profit rate, the account can be closed early without penalty, the original deposit will be returned in full and the profit at the original Expected Profit Rate will be paid anyway. In addition, to date, Al Rayan Bank states that it has always achieved the expected profit rate offered to its customers.

Why is it that cash ISAs seem to pay noticeably less than what is paid on fixed rate bonds? Surely they should be the same, with the benefit of being tax-free intended to go to the saver, not the bank?

There are a few reasons why bonds usually pay more than cash ISAs with the same term. Firstly, fixed rate ISAs have to allow access to funds and transfers out, while fixed rate bonds do not – the uncertainty that this creates for ISA providers in terms of knowing how long they will have use of the funds may be reflected in the lower rate of interest. Secondly, the need for more complex systems in order to facilitate transfers out could also mean that an ISA is simply a more expensive product to administrate. Thirdly, many of the providers at the top of the bond charts are newer banks who are fighting to establish themselves by offering highly competitive rates, but these do not offer cash ISAs.

Is it possible to invest in stocks & shares with a Lifetime ISA? And can you transfer to different providers, as with normal ISAs?

The answer to both questions is yes. With a Lifetime ISA, you can invest in either cash or stocks & shares. While savers can have more than one Lifetime ISA, it is not possible to open more than one in the same year. So, you could open a cash Lifetime ISA one year, and a stocks & shares one the next year. Transfers between providers are also possible, so that you can switch to accounts which perhaps offer better rates, more fund choice or lower charges.

I have a lot of savings and am likely to earn more than the £1,000 personal savings allowance in interest this tax year. Is there a form that I will need to fill in to settle my tax liability?

Following the introduction of the Personal Savings Allowance, basic rate taxpayers can earn up to £1,000 in savings income tax-free and higher rate taxpayers can earn up to £500. Banks and building societies are also now paying savings interest gross without tax taken off. If you exceed these limits, HMRC will collect the tax by changing your tax code, giving you a lower personal allowance for income tax, but there will be no form to fill in. Banks and building societies will give HMRC the information they need to do this, but everyone needs to check their tax code carefully, in case the information is outdated. If you currently fill in a Self Assessment tax return, it is advised that you should carry on doing this as normal.

I’m about to sell my house and move into rented accommodation for a few months, meaning I will have around £250,000 in my bank account. Am I best advised to split this between banks for protection?

As long as the funds remain in the account for less than six months, you won’t need to go to the hassle of dividing them between banks. This is because of a rule that offers protection to depositors with temporary high balances of up to £1 million for six months from the date on which the money is transferred into their account, or the date on which they became entitled to the amount, whichever is later.

The rule is specifically designed to protect people in your situation who deposit funds over the protection limit as a result of specified events, including selling a house, a divorce settlement or inheritance, until they have the time to spread the funds between institutions.

If I want to transfer my ISA, do I just tell my existing provider where I want it to go? And how long is it likely to take?

To get started, you actually need to contact the provider you want to transfer to. They will then ask you to complete some forms but should then take control of the transfer process from there. As to how long it will take, HMRC says that cash ISA to cash ISA transfers much be completed within 15 business days of the instruction being receive by the new ISA provider. If, for whatever reason, it isn’t completed within this time, you would be entitled to ask for a refund of lost interest. It is possible to transfer between cash and stocks & shares ISAs, including funds from previous tax years. However, when searching for a new ISA, it should be noted that not all providers accept transfers in, and not all will accept transfers in from stocks & shares ISAs.

I’ve had tax deducted from my savings when I don’t think I should have paid any tax. Can I try and claim it back and how do I go about it?

Yes, it should be possible to claim this tax back. You will need a Form R40 for claiming back tax already deducted from savings and investments for those not eligible to pay tax – this can be found on the HMRC website.

There is a time limit for reclaiming tax, which is four years from the end of the tax year you are trying to reclaim tax back from. So, if your claim relates to the 2015/16 tax year, which ended on 5 April 2016, you have until 5 April 2020 to make your claim. If you have any problems you can contact HMRC on 0300 200 3300.

Where would be the best place to invest £500 for our newly born grandson?

The best option in this instance is likely to be a Junior ISA (JISA). Although a parent or guardian must open a JISA on behalf of their child, contributions can then be made by anyone, friend or family, up to the annual limit, which currently stands at £4,260. Lump sum and regular payments are both welcome. Parents take the management reins of a JISA until the child turns 16. However, it is not until the 18th birthday, when a JISA automatically becomes an adult ISA, that money can be taken from an account.

Why do so many providers now only allow accounts to be operated online? With all the problems with internet banking and so many internet scams, we and many people we know will only use phone or post.

The main reason so many accounts are now internet-based is that they are relatively cheap for providers to run. An online account does not incur many of the overheads associated with branch-based and postal accounts, which also helps to explain why some of the best rates are now only available on internet-based accounts.

While your security concerns are valid, more people than ever before are comfortable using the internet to manage their finances. However, there are still plenty of high paying non-internet based accounts available, which can be easily filtered out in our charts.

Does the protected limit for savings of £85,000 in one bank include ISAs?

Yes, the depositor protection limit of £85,000 available through the Financial Services Compensation Scheme does take into account savings held in ISAs.

What you do need to be aware of is that the limit applies to money held in a banking group, rather than with individual bank and building society brands. For example, Yorkshire Bank and Clydesdale Bank both operate under the licence of CYBG PLC. This means that if you have £75,000 of savings with Yorkshire Bank and £20,000 with Clydesdale Bank, you will have a combined total of £95,000 under one licence. As a result, £10,000 of your savings here will be unprotected, and should probably be moved elsewhere

Why do most of the best bonds that you show seem to disappear almost as soon as they have launched?

It is certainly true that the top-paying bonds are vanishing quickly, sometimes within days of their launch. The reason is that accounts with an attractive rate can expect a massive influx of funds very quickly. As soon as the bank or building society has the quota of money through the door that they have decided they can pay the rate on, the product will be withdrawn. Unfortunately, at the minute, most banks and building societies don’t really need depositor’s money in order to fund their other business activities, such as mortgage lending, hence the relatively low rates and short amount of time the better rates are available. The lesson to learn is to act fast when an attractive rate becomes available, as it is unlikely to be around for too long!

My parents have given me a few thousand pounds which I think I am going to use to help buy a house sometime in the next couple of years. What type of account should I put the money into in the meantime?

If you are definitely going to buy a house with the money, then you could open a Lifetime ISA or a Help to Buy ISA. These are Government schemes which offer generous bonuses to savers, although there are a number of things that you’ll need to consider first – our guide on Lifetime ISAs should help you decide. However, if there is a chance that you will use the money for something else, then a straightforward savings account may be more appropriate. An easy access account (or ISA) may be best if you don’t know when you’ll need the funds, while a fixed rate bond (or ISA) could be an option if you’re happy you won’t need the funds for a certain period of time.

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