Warren Shute is a chartered financial planner with Lexington Wealth Management.

Contact him on 01793 771093 orwarren@lexingtonwealth.co.uk

Q I have stubbornly held on to my Cash ISA’s expecting an increase in interest rates hoping they would start to earn a reasonable interest rate rather than the sub 1% currently. Press coverage earlier this month gave me hope they would increase this year but more recently they are saying next year. In the meantime my money is earning next to nothing. What do I do?

A I cannot tell you what to do but I can summarise your options and if any are of interest you should meet with an independent financial adviser. Interest rates will increase but when?

Some ‘experts’ predict later this year, others next and some later still. If you believe it will be this year continuing with your ‘stubborn’ approach may be worthwhile but do not expect a big increase. Also, when the Bank of England Base Rate increases banks/building societies may not pass on the increase to savers or be slow in doing so.

Your first option is therefore just to accept the poor interest rate and wait ‘patiently’ – sounds more positive than stubbornly.

The real value of your money will however be eroding due to inflation which at 2.50% (April 2014) is 1.50% higher than your sub 1% Interest. Next option is structured deposits which can be held in a cash ISA. They offer a defined return dependent on the performance of an Index such as the FTSE 100 Index. They will often have a fixed term of six years although some variations will potentially mature earlier. As an example a plan may have a term of six years initially but will mature from the 3rd anniversary IF the FTSE 100 Index is higher than at the start of the plan. If it is not higher it will continue to the fourth anniversary and pay out if it higher then and so on.

If the FTSE never increases you will get back is your original capital after six years. Inflation will have eroded its real value however. The defined return will be noticeably higher than the current Interest from a cash ISA. Six years is a long time but clients are often prepared to tie up cash ISAs for this period due to the tax benefits compared to normal savings accounts. A final option is to transfer to a stocks and shares ISA. This will mean investing the money and being prepared to accept investment risk and capital volatility. You can select a fund or funds to invest in that have a level of risk that is acceptable to you. If interest rates do increase you could consider transferring back to a cash ISA in future.