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Is an ISA or a bond at 4 percent superior this year

by Jim ONeil on May 15, 2011

in ISA's Individual Saving Accounts

The key here is the rate of interest on the ISA. All interest paid on isa accounts is tax free; therefore, the Interest rate on the bond must be much higher to offset the taxes being paid when the bond matures.

It is also important to realize that most institutions will lock in a higher rate for a long-term commitment.

As long as you are capable of having your money tied up for that period, you will benefit from a higher interest rate.

Many interest rates today are much higher than those offered in previous years. The best move may be to allow the ISA to mature and then move it to another provider to take advantage of these higher interest rates. You can than top it with the current year’s contribution, making it a much more sound investment.

There are several ISAs on the market now offering interest rates well over four percent. In order for the bond to pay the same dividend, it would have to pay about one percent higher (to make up for the taxes). In addition to the extra tax benefits of the ISA, you should also take into consideration bonus offers that are available.

Just check to read the conditions of the bonus, as some pay only a portion of the money is removed early, while others will not pay any bonus at all if the funds are transferred out early.

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