Money Insider: Grab a decent ISA rate – before it disappears

By Andrew Hagger
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The Independent Online

Tuesday heralded the start of the new tax year with many people eager to find a home for their new and in many cases increased tax-free savings allowance. The main problem many are finding is that a good rate they had earmarked as a home for their ISA cash suddenly disappears from the shelves or offers a reduced rate.

In the last few days, we've seen the 3.51 per cent two-year fixed rate from Birmingham Midshires withdrawn, the best-buy 4 per cent three-year fixed rate from Marks & Spencer Money replaced with a new version paying a greatly reduced 3.25 per cent, and these are on top of other recent cuts from Santander and Nationwide Building Society.

If you have funds to transfer from previous years' ISA accounts and are looking for a fixed rate, these are the best deals on offer at the time of writing.

For those looking for a shorter-term fixed rate, Post Office is paying 3 per cent for 12 months, while a two-year ISA with Halifax pays a slightly higher 3.5 per cent. The longer you tie your funds up for, the better the rate, so for three years Halifax is offering 3.75 per cent; however, if you're over 50 you can get 3.9 per cent courtesy of SAGA.

A Halifax four-year fix is paying 4.25 per cent, and if you're comfortable with a five-year ISA fix you can plump for the very top rate of 5 per cent from Clydesdale Bank and Yorkshire Bank.

It's always nice to see customers being offered innovative products, and the Balance Builder ISA from Newcastle Building Society sits firmly in that category. The account won't be right for everybody, but it pays 3.4 per cent variable, including a bonus of 1.4 per cent for 12 months, and is a good option for those looking to regularly add to their ISA balance throughout the current tax year. This ISA permits transfers in and offers the flexibility of penalty-free withdrawals; however, to qualify for the 1.4 per cent bonus, you must make at least nine monthly payments of between £100 and £500.

Mortgage update

There have been relatively few new products launched or changes to mortgage pricing this week – however Post Office continued its competitive pricing strategy and trimmed the rate on a number of its fixed-rate deals. The two-year fix of 3.15 per cent with a fee of £999 now sits at the top of the best buys for mortgages up to 75 per cent loan to value.

Another of its product changes worth a mention is the five-year fixed rate mortgage for 80 per cent loan to value advances now at a market leading 4.84 per cent with an arrangement fee of £999.

For borrowers with a slightly smaller stake there was good news from Leeds Building Society as it cut its five-year rate to 5.49 per cent up to 85 per cent loan to value with a fee of £999 for loans of up to £500,000.

Property is pension nightmare

People relying on their property as their pension are set to face a penniless retirement, Standard Life warned this week. The traditional thinking of homeowners that they can cash in on the growing equity in their property by downsizing to somewhere smaller has been overturned by the fall in property prices allied with a long-term reduction in annuity rates.

As a consequence, downsizing a home in the UK would on average provide only £43.501 a week retirement income, compared to £53.40 in 2008. Moving from a detached house to a bungalow would potentially generate £71 retirement income a week, compared to £100 in 2008, but moving from a semi-detached home to a flat would only provide £4 a week.

"People pinning their retirement dreams on downsizing their property will be in for a shock," warns Andrew Tully, senior pensions policy manager at Standard Life. "A combination of a fall in house prices and annuity rates has dealt a double blow to many, with the average pension pot from downsizing only providing £43.50 a week income. Banking on downsizing to generate sufficient income is a potential retirement disaster unless you have also made provision elsewhere.

"Our analysis shows many people need a reality check to get their long-term financial planning back on track. The adage of not putting all your eggs in one basket has never been more appropriate."

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

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