Money Insider: Don't shun ISAs: they're a bet for the long-term


Acouple of times during the past week, I've heard people questioning the benefit of putting money in a cash ISA, saying they don't see the point when savings interest rates are so low. It's not surprising that some people have this mindset, particularly as the combined impact of low interest rates and high inflation has seen consumers struggle to maintain the spending power of their savings over the last couple of years.

It's easy to see why some may dismiss an ISA as hardly worth the effort, with a basic rate taxpayer currently better off to the tune of £34.97 per year based on the maximum cash sum of £5,640 at the best instant access ISA rate of 3.1 per cent.

If you break this down, then you'll have an extra £2.91 per month in your pocket rather than in the coffers of HMRC, which doesn't sound a great deal. But it's worth considering the cumulative effect of long-term ISA saving.

For example, if you were to save £5,640 every year for the next 10 years, and assuming that rates stays at a conservative 3.1 per cent, you will have earned £9,617 in interest over that time and saved yourself £1,923 in tax – you'll also have built up a capital sum of £56,400 in the process.

The benefits for a higher rate tax payer are even more compelling, as a 40 per cent tax payer will save £69.94 in year one and over a 10-year term will have prevented the taxman getting his hands on £3,847 of his interest.

Hopefully these numbers illustrate that putting your cash savings in an ISA is worth the effort, even if the initial savings aren't that exciting – it's all about taking a longer term view.

Looking at the new ISA deals launched this week, Barclays is offering 3.05 per cent to existing customers with its new Loyalty Reward ISA, although as has been the case in the last couple of years, the account is only for new ISA money and doesn'tpermit the transfer in of existing ISA balances. For non-customers, the rate is a fairly mediocre 2.75 per cent AER via ISA Saver Issue 2, especially when you consider there more than 10 instant access ISAs paying 3 per cent AER or above.

If you are looking for a fixed rate ISA, Yorkshire and Clydesdale Banks have just launched two new accounts. Both are very competitively priced with a two-year option paying 3.6 per cent AER and five-year fix 4.25 per cent AER. A transfer in of previous-year ISA balances is permitted, and interest is paid annually.

An extra 5 per cent deposit can be rewarding

Increased competition in a flat housing market has seen lenders turn to 85 per cent, 90 per cent and 95 per cent loan to value (LTV) mortgages.

However, the interest rate differential between a 90 per cent and 95 per cent LTV mortgage is quite alarming. If you take a scenario where a buyer is looking to buy a home valued at £120,000, a 95 per cent LTV mortgage means saving £6,000 as a deposit whereas a 90 per cent deal requires a £12,000 stake.

Putting aside an extra £6,000 may seem almost impossible, but those who do can reap handsome rewards. The best, five-year, fixed-rate mortgage at 95 per cent LTV comes with a rate of 5.99 per cent and £195 fee from Skipton Building Society. The £114,000 mortgage in this example involves monthly repayments of £733.81, and over five years will set you back £44,223.60.

A 10 per cent deposit can get a 90 per cent LTV mortgage with First Direct at 4.99 per cent and no fee, with monthly repayments of £630.73 and a £37,843.80 outlay during the five-year fix.

So an extra 5 per cent deposit means you save over £100 on monthly repayments, and pay out £6,380 less during a five-year term.

Andrew Hagger –

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

    Everyone is talking about The Trews

    Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
    'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

    'Queer saint' who bankrolled artworld giants

    British culture owes a huge debt to Peter Watson, says Michael Prodger
    Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

    Pushkin Prizes brings countries together

    Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
    14 best kids' hoodies

    14 best kids' hoodies

    Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
    Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

    The acceptable face of the Emirates

    Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk