ISAs, annuities, variable mortgages: unpopular products that are worth considering again

These products may not have been worth considering previously, but are more tempting today

Getting your finances in the best possible shape is more important than ever at the moment, given the pressures of rocketing inflation and the likelihood of a recession on the horizon.

And crucial to that is assessing the financial products you have, to ensure that you are getting the best possible value for money whether that’s on your home loan, your regular household bills or your savings.

But the money world can be quite seasonal. There are products which simply weren’t up to scratch in the past but which may now be worth reconsidering. Here we have picked out a handful that merit a second look.

Cash ISAs

The appeal of Cash ISAs has dropped significantly in recent years. It’s not just the paltry interest rates ‒ and they have been dire ‒ but also the introduction of the personal savings allowance.

This tax break ensures that most of us can enjoy up to £1,000 (dropping to £500 for those paying the higher rate of Income Tax) in returns from their savings before having to pay tax.

Because of those rubbish interest rates, many savers, therefore, paid no tax on the interest earned, even if the money was kept outside of the tax-free wrapper offered through an ISA.

Things are changing now though, off the back of the various base rate hikes we’ve seen.

As banks and building societies have increased the interest rates on offer on their various savings deals, suddenly that personal savings allowance may not be enough for those with significant savings pots.

As a result, focusing on savings deals that offer a return without the taxman taking a slice are all the more attractive, particularly for those higher earners who have a smaller personal savings allowance. 

It’s a good idea to work out how much you have in savings, what return you’re likely to get from your pots and how that compares to your own savings allowance. If you’re in danger of breaching it, then moving the money to an ISA is well worth considering.

Tracker mortgages

I’ve never been a huge fan of variable rate mortgages. I’m quite conservative when it comes to money management, valuing the certainty that comes from knowing exactly what my repayments will be each month.

And in recent years, the fixed rate mortgage has been so cheap that the premium paid for that certainty has obviously been worth it.

However, the interest rates on fixed rate deals have risen rapidly of late, to the point that the typical five-year fixed rate now comes with an interest rate above 4%.

If you’re about to remortgage, that may well be quite a large payment jump, and one that you’re locked into for quite a while.

By contrast, even with Base Rate having risen frequently this year ‒ and more rises on the horizon ‒ variable rates start to look a little more appealing, with rates as low as 1.48%.

If Base Rate doesn’t jump significantly over the next five years, then it may be that a tracker mortgage works out more friendly to your bank balance than locking into a fixed rate deal.

There’s no escaping the fact that it’s a gamble though, and you’ll have to be prepared for your monthly repayment to increase in the short term.

Standard energy tariffs

There was a time ‒ not that long ago ‒ when I would have passionately argued the case against standard energy tariffs. These were the deals that people were shunted onto once their initial fixed or variable tariff can to an end, and were always far more expensive. 

They were essentially a way for suppliers to cash in on our apathy‒ indeed that’s the whole reason the energy price cap was introduced, to limit the greed of suppliers when it comes to milking those who could not or would not switch to a new tariff every year or so.

The trouble is, that the market has changed significantly since then.

The wholesale market turbulence has led to dozens of suppliers hitting the wall, to the point that there are no almost no fixed tariffs available on the market for people to move to. And those few deals that are available, whether to new customers or existing ones, are all more expensive than the energy price cap.

We have ended up in the extraordinary position that ‒ for now at least ‒ it’s actually kinder on the finances to be on a standard energy tariff, that is covered by the energy price cap.

Of course, it’s worth remembering that the price cap is due to increase substantially in the coming months, with the latest forecasts suggesting that the cap could reach as high as £6,000 next April.

Annuities

The introduction of pension freedoms seemed to have sounded the death knell for annuities.

The guaranteed income offered by annuities was no longer the cut-and-dry option once savers had more choice, given the returns offered on the pension pots saved had been ever less tempting.

As a result annuity sales fell off a cliff.

Again though, things have changed substantially. For starters, the rates on annuities ‒ and therefore the incomes you can get from cashing in your pension pot to buy one ‒ have improved markedly of late.

In fact, some providers, such as Canada Life, have increased their annuity rates more than a dozen times this year already.

The attraction of annuity products has also increased due to economic uncertainty. Having a secure income that you can rely on is welcome at the best of times, but even more so when the situation is quite as tumultuous as we currently face with the cost of living crisis.

After all, one of the biggest dangers of remaining in a drawdown pension is the risk of emptying your pot, something that becomes somewhat likelier with prices rocketing as they are currently.

By contrast, at least you know where you are with an annuity ‒ you know exactly how much you have to spend each month for the rest of your life.