Savvy or sorry? What type of ISA saver are you?
Fair Investment Company's savings analyst Julie Smith helps you discover if you are a savvy saver or a sorry saver and points out some leading ISA deals available through fairinvestment.co.uk:
Sorry Savers
"Too many ISA savers are earning next to nothing on their savings, and this is not because there are no good rates out there," says Julie.
"Attractive introductory rates pull savers in, but many either don't realise or don't remember that after a fixed time, these introductory rates come to an end and revert to earning little or no interest.
"These 'sorry savers' are really losing out, because they leave their money in poor paying accounts just because an introductory offer was good, or because they simply don't check their rate and have no idea it is no longer as competitive as they thought.
Savvy savers
"The opposite of the sorry saver is the savvy saver and there are two types; those who are constantly switching accounts to make sure they always have the best deal available, and those who take their time to find a longer term deal that suits them. They are very different attitudes to saving, but both are savvy."
If you are happy to keep your eye on the ball and constantly be aware of the best deals on the market, you can be a savvy saver by ‘chasing the rate', as Julie explains:
"As with any financial product, car insurance, credit cards, utilities, being rate smart can really pay off. If you are constantly checking your deal, and switching to something better if it becomes uncompetitive, not only are you getting a better rate for yourself, but it forces providers to compete for your business, which ultimately will result in better deals.
"Generally, the longer you are prepared to tie your money up for, the higher the rate you will receive. However you need to consider that the base rate may go up during the fixed term period and this could mean that your once market leading rate is no longer competitive. Many people prefer to keep their options open by choosing a shorter term or variable rate, either because they don't want or can't afford to tie their money up for a fixed period of time.
"There are plenty of people that take this 'chase the rate' attitude to saving, and this could really pay off, as long as you are fully aware of the terms and conditions of your deal. For example, you should make sure that you are keeping track of when the introductory offer ends and if there are any penalties for transferring out within a certain time period. Remember to start looking around for new rates well before you lose the advantage of the introductory bonus rate. Another point to note is that not all ISA accounts accept transfers in from ISA savings made in previous tax years.
One of the best rates around at the moment, and available through fairinvestment.co.uk is the Halifax ISA Direct Reward which does accept transfers in from previous years' ISAs. This account currently offers a rate of 3.00% AER (variable) for the first 12 months, reverting to the base rate after the introductory period, and also has the benefit of Halifax's ‘ISA Promise' which offers to pay interest from day one of receiving your completed transfer application form rather than waiting for your existing ISA provider to complete the transfer. This means that you do not have to worry about missing out on interest if your ISA transfer takes longer than expected.
"Alternatively" says Julie "If you don't have the time or inclination to keep switching to ensure you have the best deal, you can still be a savvy saver, as long as you pick your ISA carefully.
"Some ISAs may not be at the top of the table but do have the benefit of offering consistently competitive rates though with the base rate so low at the moment, consistently good variable rates may be hard to find. As long as you are happy to tie your money up, a good solution would be a fixed term ISA as you don't need to worry about the ISA rate changing until the end of the term."
If you are able to fix your ISA for a longer time, you could consider the RBS 3 Year Fixed Rate Cash ISA paying 3.70% AER, also available through fairinvestment.co.uk. You are able to transfer previous years' ISAs into this account. However you need to be sure that you won't need to access the money during this time as partial withdrawals cannot be made and charges may apply if you close the account early.
It goes without saying that fixing the rate for a longer period does have disadvantages. The main one being that if you choose to fix for a longer period, you won't stand to benefit from any potential increase to the base rate over the coming years as you would with a variable rate.
Julie concludes, "Whether you are always on the pulse, or way behind the game, you can still be a savvy saver, you just have to know which ISA account suits your saving habits."
For a wide range of ISA deals, see fairinvestment.co.uk.