Where can I find the best cash ISAs?
We’ve rounded up the top cash ISAs for those who want to benefit from tax-free savings before 5 April.
Times are undeniably tough for savers with high inflation and many conventional savings accounts paying abysmal returns – some as low as 0.5%.
If you want to maximise the returns on your money, taking out a cash ISA could allow you to shelter up to £5,100 from the taxman.
However, you will need to act quickly – in order to benefit from tax-free savings this year, you will need to invest before the tax year ends on 5 April.
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We look at the best cash ISA options currently on the market.
Do you already have an ISA?
If you invested in an ISA last year, it might be worth checking your current interest rate as it may be far lower than you realise. This is because a number of providers offer eye-catching rates for 12 months but then returns drop – should this happen it might be worth shopping around for a new provider.
If you want to get a better rate on a previous ISA investment, Halifax's ISA Direct Reward accepts money from old ISAs and pays a return of 3% - jumping to 3.2% for current account holders. Furthermore, you can open an account from as little as £1.
Likewise, Nationwide customers wishing to transfer ISA money could consider the e-ISA, which pays 3.1% and allows free withdrawals. Again the minimum investment is £1.
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?
Do you have fresh money?
Santander's Flexible ISA guarantees to track 2.8% above the Bank of England base rate for one year. At present, the 0.5% interest rate means the account current pays 3.3%.
If you are an existing Santander customer, you could apply for the Loyalty Flexible ISA which pays 3% above the Base Rate – currently 3.50%.
Because these products follow the Base Rate, your returns would increase if the Bank of England hikes interest rates in the next 12 months.
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However, it could be wise to move your money to a new provider after a year when the rate drops to 0.5%.
Alternatively, the AA pays a competitive 3.35% on its internet access ISA for a minimum £500 investment. As a negative, the product comes with a 1.65% bonus for a year after which the interest drops to just 1.7%.
Can I lock my ISA money away for longer?
As with other savings options, you may get a higher rate on your ISA if you are willing to lock your money away for a number of years – although fixed-rate products typically impose a penalty if you withdraw your cash.
For instance, Santander pays 3.7% to savers willing to lock their money away for two years on a minimum £500 investment. Beware, however, the bank will penalise you with a hefty 120 days' loss of interest if you close the account.
Alternatively Halifax pays 3.5% for two years on a minimum of £500 but imposes a 180 day interest penalty if you withdraw your cash. If you're willing to lock your money away for longer, you could earn up to 4.3% over four years with Halifax.
Want more information?
For more information about ISAs including the potential pitfalls and traps to avoid, check out A beginner’s guide to ISAs.
If you are considering investing in a stocks and shares ISA, read our investment ISA Q&A.
**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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