ISAs: what's top of the tables?
A flurry of new cash ISAs has hit the market recently as the banks battle to offer the best rates to savers. We give you a rundown of some of the most competitive deals.
Many people have been put off saving due to the combination of high inflation and the low Base Rate, but it’s be wise for people to make sure they have some money put away for an emergency.
What is an ISA?
ISA stands for Individual Savings Account, but the difference between one of these and a normal savings account is that you don’t have to pay any tax on the interest you earn.
Those aged 16 or over can save up to £5,340 in a cash ISA during the 2011/12 tax year.
There are a number of easy or instant access ISAs on the market, which allow you to withdraw money at any point.
However, the longer you agree to lock your money in an account, the higher the interest rate tends to be.
Easy-access ISAs
Cheshire Building Society’s Direct Cash ISA (issue 1) has an interest rate of 3.06% gross AER.
This includes a bonus of 2.06% until 30 September 2013, at which point it may be wise to look for a more competitive deal.
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Customers can open this account online and make withdrawals whenever they like, but they have to do so by post.
It’s also worth bearing in mind that at least £1,000 has to be paid into the account upon opening.
Alternatively, ING Direct is offering 3% gross AER with its Cash ISA 2011/2012, which requires at least £1 to be paid in upon opening.
This account also has a bonus rate, but it is slightly lower at 2% and ends a year after the account is opened.
Neither of these accounts allow transfers in from previous years’ ISAs.
Two-year fixed
With NatWest, savers can receive an interest rate of 3.9% gross AER if they transfer ISAs from previous years and lock their money away for two years.
Those who don’t have existing ISAs to transfer in can still benefit from an interest rate of 3.5% gross AER.
Customers must pay in at least £1,000 when they open their account and no additional deposits can be made after 28 March 2012.
With ISA season already upon us, time is running out to use this year’s tax-free savings allowance. But just how much do you know about ISAs?
No partial withdrawals can be made and those who close their account early will lose 180 days' interest.
The Post Office, on the other hand, offers an interest rate of 3.6% gross AER with its Two-Year Fixed Rate Cash ISA.
This can be opened with a single deposit of £500 or more, or by transferring in an existing cash ISA of at least £500.
If the saver closes the account early, they will be charged 180 days’ interest, but the account can be managed by post, over the phone or in-branch.
Five-year fixed
For those who are willing to lock their money away until 2017, BM Savings is offering an interest rate of 4.25% gross AER with its Five-Year Fixed Rate ISA.
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Savings of £500 are required to open this account, which can be applied for online or over the phone, but managed via post only.
Customers can withdraw money from the account, but they’ll be charged interest on the amount withdrawn if they do so.
It’s possible to transfer money in from previous ISAs and this money will also benefit from the 4.25% gross AER interest rate.
Junior ISA
It may also be possible to save tax free on behalf of a child with a junior ISA. These allow those born before September 2002 and after 2 January 2011 to save up to £3,600 per tax year.
The money saved will then remain tax free until the child’s 18th birthday.
National Counties Building Society’s Cash Junior ISA comes with an interest rate of 3.01% gross AER and can be opened with as little as £1.
No money can be withdrawn from the account and it can’t be closed until the child reaches the age of 18.
These obviously aren’t the only cash ISA products on the market, so savers may want to have a look around before they settle on one account.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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