Banking/Savings Section

Shocking Inflation News For Higher rate Tax Payers - You Must Earn 5.5% Gross on Cash Just To Break Even - Here's What To Do

June 2006

The current inflation scandal reminds us of a problem relative, every knows of the trouble but tries to sweep it under the carpet and quickly start to think about other matters.

But this strategy is not good enough because with inflation now running at an official rate of 3.3%-3.5% a year (unofficial rate we would suggest is more like 5%-6%) the purchasing power of any cash that you have on deposit is slowly being eaten away.

Financial experts now agree that a lower rate tax-payer must earn at least 4.1% on their savings just to break even over a year while higher rate tax-payers must earn at least 5.5% which quite frankly is a tall order these days.

However, some help is at hand from the Northern Rock’s Mini-Cash ISA account which pays 5.15% tax free. And if you haven’t got an ISA then you must seriously consider getting one in order to help try and protect against the ravages of inflation.

What Is An Min-Cash ISA

• It is a tax-free savings account where up to £3,000 a year (tax year) can be deposited
• All the interest is 100% tax-free
• You don’t have to invest all the £3,000 limit, some accounts have a minimum of £1 and you can make regular deposits, say £100 a month
• Mini-Cash ISA accounts are sometimes instant access and other times you have to lock your money up for a certain period of time so check on this
• Any ISA money can be stacked year on year and all the interest is tax free - this means that -

If you deposited £3,000 in an ISA in every year since 2000 you would now have 6 x £3,000 = £18,000

The interest earned on the £18,000 is all tax-free and will remain tax free as long as the money is held within a specialised ISA account

The Northern Rocks Mini ISA Deal

• Pays 5.15% fixed until Aug 15 2007
• Minimum investment is £500
• Although you can have instant access to your money at anytime there are penalties
• Minimum withdrawal amount is £250 and this is subject to a loss of interest on the amount withdrawn equivalent to 60 days'

Summary

As we said before inflation is a deadly and silent enemy and these days it’s not a threat but a reality. In fact the actual threat is of higher inflation over the coming years because once inflation starts it’s like a rolling snowball – only gets larger and increasingly harder to stop.

Now is the time to get serious with any spare cash and start looking at the inflation angle so opening mini-cash ISAs such as the one offered by the Northern Rock is an excellent start.

See Also

• Want To Start Sorting Your Finances Out? Then Get a Tax-Free ISA
• This Site is Great! Manage All Your Online Bank, Savings & Credit Card Accounts From The One Webpage
• Northern Rock ISA webpage
• Find's list of Cash ISA Accounts