1 Month
Ask Rachel
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 cash ISAs seem to pay noticeably less than what is paid on fixed rate bonds? Surely they should be the same, with the benefit of being tax-free intended to go to the saver, not the bank?
There are a few reasons why bonds usually pay more than cash ISAs with the same term. Firstly, fixed rate ISAs have to allow access to funds and transfers out, while fixed rate bonds do not – the uncertainty that this creates for ISA providers in terms of knowing how long they will have use of the funds may be reflected in the lower rate of interest. Secondly, the need for more complex systems in order to facilitate transfers out could also mean that an ISA is simply a more expensive product to administrate. Thirdly, many of the providers at the top of the bond charts are newer banks who are fighting to establish themselves by offering highly competitive rates, but these do not offer cash ISAs.
This week's
average rates
| No Notice | 0.64% |
| Notice | 1.11% |
| Cash ISA | 1.19% |
| 1 Year Fixed Rate Bond | 1.29% |
| 2 Year Fixed Rate Bond | 1.39% |
| 3 Year Fixed Rate Bond | 1.56% |
| 4 Year Fixed Rate Bond | 1.80% |
| 5 Year Fixed Rate Bond | 1.88% |
| 8 October 2019 | |
Subscribe for free
To receive Savers Friend every week, please sign up for your free subscription
Alternative sources of income
Growth in investments into ethical funds
We are currently in the middle of Good Money Week, an annual campaign designed to highlight awareness of sustainable, responsible and ethical finance, making it the perfect week in which to re-evaluate where your money is being invested. According to the Investment Association, funds badged as ‘ethical’ now stand at £20bn of assets. Although those wanting to invest in an ethical fund can also do so by depositing into an ethical savings account, many of which offer highly competitive rates. For instance, Gatehouse Bank currently pays a highly competitive 1.40% as an expected profit rate on its easy access account. Commenting on ethical savings accounts, Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The urge to invest more ethically could come to mind if savers are getting little return for their loyalty from a big high street bank, which consequently leads them to seek an alternative. Thankfully, there are ethical brands out there to consider, and in fact the leading ethical easy access deal is currently offered by an Islamic bank.
“Investing ethically can be as simple as switching to a brand that has ethical principles, where savers can feel like they are making a difference but are also given a fair return on their hard-earned cash. Big banks just don’t need savers’ cash, so it’s not surprising to find that they are paying abysmal rates. HSBC pays just 0.15% on its Flexible Saver, but Gatehouse Bank pays 1.40% as an expected profit rate on its Easy Access Account. Even the highest new customer rate from a big bank is just 0.40% from Santander on its eSaver (Issue 15).
“While Islamic banks don’t pay interest, they do pay an expected profit rate, and this can be comparable to other savings accounts. Where an Islamic bank is covered by the Financial Services Compensation Scheme and regulated by the Financial Conduct Authority, savers can be safe in the knowledge that they have the same level of protection as with any other provider under the same scheme. Islamic banks also offer decent returns on notice accounts too, where savers can get a little more than on an easy access deal.
“During a period of economic uncertainty, savers may well be rethinking how they invest and want to know whether they are banking with a brand that is giving back to the community. Triodos Bank for example gives back via community projects and lent £38.4m in 2018 to support 255 sustainable properties and projects. Its Easy Access account may pay less than 1%, but it still beats the rates offered to new customers from the biggest high street banks.”
© 2019 Moneyfacts.co.uk Limited. All Rights Reserved. Use of this Web site constitutes acceptance of the Company's General Terms of Use & Privacy Policy. Moneyfacts.co.uk Limited is registered in England and Wales, company no. 6615303. Registered office: Moneyfacts House, 66-70 Thorpe Road, Norwich NR1 1BJ. Authorised and Regulated by the Financial Conduct Authority. Shown on the Financial Services Register register number 486048. Moneyfacts and MONEY £ ACTS are Registered Trademarks.