Focus on: Halifax's five-year fixed rate ISA at 4.50%

Published:
15 March 2012
Topic:
News,Money,Savings,Product review

Halifax is leading the charge on fixed rate cash ISAs, with a clutch of deals over one to five years. The savings provider is paying a hefty 4.50% AER over the five-year term via its ISA Saver Fixed, which puts the deal as current market-leader over this timeframe.

Here we take a closer look at the account, as well as any alternatives on offer...

What's the deal?

Halifax's chunky 4.50% fixed rate tax-free ISA is available for a minimum investment of £500 and allows you to transfer into the account existing cash ISA balances held with other providers that you have accumulated over previous years.

However, once you have made your initial deposit, no additional deposits or withdrawals are permitted during the five-year term. If you need your money in an emergency you can close the account early, but you'll lose 365 days' interest.

You can open the account online, in a Halifax branch or by post. As with all ISAs you must be at least 16 to open the account.

And providing you invest at least £5,000, savers signing up to a Halifax ISA will also be eligible for the Halifax Savers' Prize Draw. Each month there will be three prizes of £100,000, 100 £1,000 prizes and 1,000 prizes of £100. However, you won't be automatically entered into the prize draw. You need to register, which can be done by filling in a form at www.halifax.co.uk/saversprizedraw/ or calling 0844 571 50 76.

What if I don't want to fix in that long?

While interest rates are not expected to rise anytime soon, in half a decade's time even this market leading 4.50% could look uncompetitive. But you can fix in for a shorter period of time and still get a market leading rate.

Halifax is trying to put clear blue water between itself and its rivals - so has upped the rate on its four-year fixed rate cash ISA from 4.20% to 4.35%. The rate on the three-year deal has increased from 4.00% to 4.25%.

The same conditions apply here regarding the minimum deposit of £500. If you have to close the account early there is 320 days' loss of interest with the four-year product and 270 days' loss of interest on the three-year account. Once again, you can transfer ISA balances from previous tax years if you want to keep all your ISAs under one roof.

What if I don't have a £500 deposit?

If you can't stretch to the £500 minimum deposit but want the sort of high rate of interest that comes with a lengthy fixed term deal, you could consider the five-year Fixed Rate ISA from the Leeds Building Society. Here the minimum deposit is just £1, and the rate is still tasty at 4.00%.

As with the Halifax ISAs, the Leeds account accepts transfers from other accounts. Usefully, you can withdraw up to 25% from the account without giving notice or suffering an interest penalty. Early closure of the account or withdrawals of 25% or more incur a loss of 180 days' interest.

The Leeds ISA is available in branch or through the post.

Are there any downsides?

With fixed rate ISA deals, you lose the flexibility to pump in more money - and you if you take money out you usually lose a lot of interest. It's therefore important to make your initial deposit as large as you can afford but without over-committing money that you think you might need before the end of the term.

And there's always a risk with a fixed rate product: the rate you're getting might look good today, but if rates rise over the course of the term, it might begin to look a little weedy. That said, many people enjoy the comfort of knowing their money is locked away on a guaranteed rate for a number of years.

What's the verdict?

If you want the best rate of interest and can handle the minimum deposit and withdrawal conditions, the Halifax five-year fixed rate ISA paying 4.50% is a fine deal. The three and four-year deals paying 4.25% and 4.35% are also attractive, especially given that you can transfer in ISA balances from other providers.

The Leeds deal - 4.00% fixed for five years with a £1 minimum deposit and some ability to make penalty-free withdrawals - makes up for the lower interest rate with enhanced flexibility.

Another option at 4% is Santander's Fixed Rate MAJOR ISA, although this is only guaranteed for two years. As with the Leeds, the account requires a minimum investment of £1 - and it offers a 0.10% bonus if golfer Rory Mcllroy wins an eligible golf major before the account matures.

Top tip

Everyone gets an annual cash ISA allowance, which is pinned to a particular tax year - and it makes sense to use each year's allowance if you can. If you don't use your allowance before the end of the tax year on April 5, you cannot carry it over to next year, so you lose that tax-free allowance.

There is not long left to use your £5,340 cash allowance for this year and, from April 6, you will have to use your 2012-2013 cash ISA allowance, which stands at £5,640.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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Kevin Pratt

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