Working in the financial industry for over 30 years, Rachel Thrussell is the leading independent expert on UK savings products. Her views are constantly in demand from both the industry and the press.
Why is it that ISAs seem to be paying less than similar length fixed rate bonds?
There are a couple of reasons for the difference between rates. The first is that the best bond rates are typically being offered by challenger banks, who are new to the market and trying to establish themselves. As new entrants, these providers don’t usually offer ISA products straight away, as these typically involve more administration. If you were to look at just the banks that do offer both bonds and ISAs, it would become apparent that both rates tend to be pretty much on a par with each other.
This leads onto the second potential reason why ISA rates are lower, which is that by having to allow transfers out, banks must price into their ISA rates the chance that they may lose the money from their coffers before the term ends. With fixed rate bonds, providers can mitigate against this by adding restrictions that prevent early access to funds.
|1 Year Fixed Rate Bond||1.25%|
|2 Year Fixed Rate Bond||1.51%|
|3 Year Fixed Rate Bond||1.70%|
|4 Year Fixed Rate Bond||1.97%|
|5 Year Fixed Rate Bond||2.08%|
|24 April 2018|
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