Discover How You Can Get the Best ISA Rates For Your Money Today
An article from BestISARate.org - Keeping you informed of the best ISA rates in the UK.
The views of the author of this article may or may not necessarily reflect the views of Early Retirement Investor.com
Why is the best ISA rate on the UK market not even beating inflation at the moment?
Inflation in the UK is somewhere between 4-6% at the moment (dependent on which inflation index you choose - CPI or RPI) so even the best ISA rate will not help you beat inflation at the moment, but that will change in time.
Therefore, it's still vitally important you open up a new ISA (whether it's a cash mini ISA or a maxi ISA) and use your tax-free savings allowance NOW. When interest rates improve, you can gain the benefit in later years by moving your older, lower-interest ISAs to a new provider at better rates.
Iflation is killing you!
It's inflation that is the hidden killer of your spending power now and in the future. Inflation is a huge barrier to the accumulation of wealth for most people and despite your savings growing each month or year, that absolute amount of cash at the end will be worth less in just 1, 2 or even 40 years than it is now, if things continue as they are.
At present, ISA interest rates need to be at least 6% to be above inflation using the RPI index, or 4% using the CPI index. These kinds of interest rates are no longer around, even on longer-terms deals (locking your cash away for 2 years or more), so what can one do?
Why do we save money and what are savings?
Ultimately, we have to understand that savings are simply "delayed" spending. We save money to provide ourselves with a nest egg for eventualities that inevitably happen in life or to save up for things we want or need - mortgages, cars, funerals, weddings, health, children, plus many more reasons I won't list here.
However, the reasons why we save our money is not important for this article. What is important is that the money is going to be spent by you or someone you give it to - either soon or a long time away, especially if we are saving money for our own retirement years. As the old saying goes, "you can't take it with you". Ultimately, some of that money will end up going back to the government in some shape or form.
Here's why UK savers cannot get great ISA or savings rates at the moment:
- Banks and governments need you to spend your ISA money so they can get their cut of it (whether that's through VAT, corporation tax, or some other insidious stealth tax) because whilst it's in an ISA, they can't touch the interest you make
- Government-owned banks cannot be perceived or seen to be offering advantageous rates over non-state owned banks, especially if they can offer the best ISA rate in the UK (which NS&I were doing with their inflation-busting growth bonds, until they were stopped in July 2010)
- As already explained, savings are "delayed spending" and the government needs you to spend your savings now to buoy any economic recovery that might be occurring, so interest rates will likely remain low for some time yet to entice you to spend the money, if you can't get great ISA saving rates
- Banks are now having to ensure (via the EU and their respective governments through financial stress testing) that they have enough liquidity (ie. cash assets) to cover all creditors should another banking failure occur like the global, catastrophic one in 2008. This explains the huge disparity between savings rates and the rates at which they lend out your money to borrowers, as it has to cover this aspect, make profits and also return value to shareholders in the way of dividends!
The bottom line is this - get the best ISA rate you can during this current tax year and use your ISA allowances (regardless of interest rates overall, although obviously sign up for the best ISA rate you can). Then, transfer these old ISAs when the rates begin to increase in years ahead to get the best return on your savings. After all, why pay the government more tax than you need to?
About the author
Clare likes to write articles relating to ISAs and how they may be an alternative, effective form of retirement planning. Take a look at her website: BestISARate.org - Keeping you informed of the best ISA rate in the UK. Now you can compare ISA rates to get the best savings rates for your money.
Republished with prior permission from the author and under the terms of Ezinearticles
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