Focus on: Halifax hikes fixed rate ISAs

Recent weeks have seen a flurry of activity in the individual saving account (ISA) arena, with a number of major providers launching new deals or raising rates.

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Halifax is among the banks to improve returns on offer, increasing rates on several accounts across its fixed rate ISA range – and creating a new market-leading deal in the process.

But is this the place to be saving tax-free? We take a closer look at Halifax’s new-improved fixed rate ISAs to help you decide whether one of these accounts could be the right for you.

What’s the deal?

Halifax offers fixed rate ISAs over varying terms, ranging from one to five years. It has just raised rates on its three, four and five-year accounts by up to 0.40%.

The three-year fixed rate ISA now pays an annual equivalent rate (AER) of 2.50% (up from 2.25%), while the four-year account pays 2.60% AER (up from 2.30%), and the five-year account pays 2.75% AER (up from 2.35%).

Each of these accounts can be opened with £500, and the maximum you can pay in is the 2013/14 cash ISA allowance of £5,760. If you pay in £5,000 or more into a fixed rate ISA, you can register for Halifax’s Savers’ Prize Draw which gives you a chance to win one of three £100,000 prizes every month.

You can’t make any withdrawals from these accounts, or additional deposits, and penalties will apply if you close your account before the stated term.

Savers can apply for Halifax’s fixed term ISAs online, and the accounts can be managed by telephone or in branches. All deposits into your account must be made within 60 days of opening.

Who’s it good for?

Halifax’s fixed term ISAs are a good choice for savers who want to be certain that their returns won’t suddenly plummet, and who can afford to leave their savings untouched for a set period of time.

These accounts may also suit those who are looking to move money across from other cash ISAs, as they accept transfers in – provided you use Halifax’s ISA switching service.

Any transfer from existing ISAs won’t affect your current tax year allowance but remember not to shut down existing ISAs yourself to transfer money across otherwise you’ll lose your tax benefits.

Any catches?

The biggest drawback of the Halifax fixed rate cash ISAs is that, like most fixed savings accounts, they don’t allow any withdrawals during the account term.

That means you must be certain that you won’t need to get your hands on your cash during the fixed rate period you choose. If you do need to access your money, then your only option is to close the account early and face hefty penalties.

For example, if you close Halifax’s one-year fixed term ISA early you’ll lose an amount equivalent to 90 days’ tax-free interest, rising to 180 days’ and 270 days’ interest respectively if you close the two year or three year accounts early. Penalties increase to 320 days’ and 365 days’ interest if you opt for the four or five year accounts and then close them early.

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What’s the verdict?

Although Halifax’s new higher rates make these accounts much more attractive to savers, only the three-year term fixed rate ISA paying 2.50% AER is market-leading.

Higher rates are available elsewhere for savers looking to tie up their cash over a one, two, four or five-year period. For example, Halifax’s one-year term ISA pays 1.60% AER on a minimum investment of £500, but savers can earn 1.90% AER with the Post Office’s one year Fixed Rate Cash ISA Issue 10, which can be opened with the same amount.

Similarly, Halifax’s two and four-year accounts pay 2.10% and 2.60% AER respectively, but you can earn 2.15% AER with Aldermore’s two-year Fixed Rate Cash ISA and 2.75% AER from Coventry’s four-year Fixed Rate ISA.

However, Halifax’s accounts are still the winners for smaller savers, as you have to invest £1,000 to open the Aldermore account and the maximum £5,760 ISA allowance to qualify for Coventry’s account.

For those looking to tie up their money for five years, Halifax’s account pays 2.75% AER, compared to 3.05% from Leeds Building Society’s five-year No Access ISA which can be opened with a minimum investment of just £1.

Other competitive fixed rate cash ISAs include Virgin Money’s recently launched deals. Virgin’s onethree and five-year ISAs pay 1.85%, 2.20% and 2.75% AER respectively, and all three accounts can be opened with a minimum investment of £1.

Top tip!

If you are considering tying up your savings in a fixed term ISA, make sure you make a note of when the fixed term period finishes and remember to move your money then.

Your savings may be moved into an account paying a much lower rate of interest once your fixed ISA matures, so find out all your options and switch your money then if it could be earning higher rates of interest elsewhere.

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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