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Spend & Save

Money Insider: Barclays tops the best buys with Golden ISA

on monday, Barclays announced its latest ISA offering, The Golden ISA (Issue 3), which went straight in at the top of the best buy tables courtesy of a 3.25 per cent AER rate, 0.1 per cent ahead of its nearest rival, Santander.

Under the terms of the new "Barclays Rate Promise" announced the same day, the bank has also committed to pass on any Bank of England Bank Rate increases in full on the ISA until March 2012, a promise which also applies to other selected accounts in the Barclays savings range.

While 3.25 per cent AER is a good rate in the current economic climate, once again neither of the two highest paying variable ISA deals will allow you to transfer in your ISA balances accumulated from previous tax years.

The Golden ISA 3 can be opened from just £1, although the rate includes an introductory bonus of 1 per cent for the first 12 months only, so it's important to review your tax-free savings at this time and switch to a better-paying account if needs be.

If you're looking to deposit your full 2011/12 allowance of £5,340 in this account for 12 months, you'll receive a tax-free return of £173.55.

On the subject of ISAs, results of a survey from Nationwide Building Society this week highlighted a lack of understanding among the general public when it comes to tax-free savings. Some 26 per cent of people didn't realise that there was a limit on how much they could pay in each year, and more worryingly, 39 per cent believed that tax is paid on the interest earned in an ISA.

If we want to get more people saving for their future, then we need to make the products and possibly the subscription limits clearer and easier to understand.

For the man on the street, it's no surprise that confusion reigns, with a choice of variable rates, fixed rates, some accounts allowing transfers in, some not, cash ISAs that can be switched to equity ISAs but not the other way round, short-term bonus rates, accounts only available via the internet, and some accounts allowing withdrawals where others don't – I could go on, but I think you get my drift.

This is just another example why the fundamentals of saving and borrowing money need to be included in the school curriculum as a mandatory subject for all children. With money at the centre of almost everything we do, why on earth are we not teaching people from an early age how to manage and make the most of their finances, rather than letting them suffer through ignorance in later life?

95% LTV mortgages still available

Clydesdale and Yorkshire Banks announced their commitment to supporting first-time buyers this week and remain one of only a handful of lenders prepared to lend up to 95 per cent of the property value.

In 2010, these banks found that 13 per cent of all their approved mortgages were for first-time buyers, with the average price of that first home coming in at £121,717.

The 95 per cent LTV mortgage from Clydesdale and Yorkshire is priced at 6.99 per cent fixed for three years, with a product fee of £599. Whilst the rate looks high when you compare it against the 4.85 per cent rate from Post Office for up to 85 per cent (plus £995 fee), regulatory constraints force banks to set aside between six and eight times as much capital reserves for high-value loans, hence some of the funding cost is passed on to customers. A lack of suitable first-time buyer finance being made available during the last three years has fuelled the demand for rented property, and due to limited supply, rental costs are soaring.

So while the 6.99 per cent rate may appear high, the option to be able to buy subject to finding a more realistic 5 per cent deposit (in this example £6086) may still appeal when comparing the monthly cost with that of a rented property. A 95 per cent mortgage based on the average price of £121,717 equates to £115,630 and would require monthly repayments of £816.52.

If on the other hand you decided to try and save a bigger 10 per cent deposit as demanded by other lenders, your monthly repayments would still be £773.54 per month, just £40 per month less – not really a huge benefit for that extra couple of years of hardship, struggling to amass the extra 5 per cent stake.

The mortgage market remains subdued and there's little likelihood of this changing in the short term, however it's essential that those who can prove they have the financial capability to service a 95 per cent LTV mortgage should at least be given the opportunity to do so.

Andrew Hagger is a money analyst at Moneynet.co.uk