Another year and another anniversary. We are now fast approaching 4 years since the last interest rate move in the UK. In March 2009 the Central Bank cut rates to 0.5% and we have spent 46 frustrating months trying to second guess when they will start to move in a northerly direction again.
Indicators certainly seem to point to the status quo being maintained throughout 2013 but a more pessimistic (or is that realistic?) view from the Investment Bank Citi is that we are merely half way through this period of rock bottom interest rates and they believe that as the government continues to try and restore the economy to health that the low interest rate of 0.5% will need to be maintained until 2017 at the earliest.
What This Means Going Forward
Great news for those paying off their mortgage but for the investor there is the continued headache of where to put their low risk cash funds. For anyone that pays tax on their savings, then finding a good cash ISA is certainly your starting point. With over £210 billion invested into these accounts since they were introduced 14 years ago, their popularity seems to continue despite the average high street ISA rate plummeting from around 5% to 0.59%.
You can use a different cash ISA account each tax year so reviewing the market each time is a sensible strategy but once you you’ve made you investment don’t assume that your building society or bank will give the same rate of return in the future as it offers on its, headline grabbing, new accounts.
Over the years, banks and building societies have launched a string of new accounts which they then close to new savers, with the rate dramatically dropping in the subsequent period. Confusingly many of the accounts have the same name and it’s only when you start to dig around that you can spot any difference.
Recent research carried out by the Daily Mail found that during 2012 out of the top 65 ISA cash accounts 28 of them now pay only 0.5% per annum or less and 4 out of the top 5 institutions also had other ISA accounts that appeared in the bottom 15. The interest rate of 2.8% on the Santander Flexible ISA Issue 4 is 28 times higher than the Santander Easy ISA Issue 1. There was no penalty for transferring out of this account and yet many investors failed to realise that their once top of the range model had become a bit of an old banger and in need of trading in.
As with the riskier parts of your portfolio keeping active with your cash investments can equally pay dividends.