Focus on: Cheshire's improved easy access ISA now paying 3.50%

Published:
22 March 2012
Topic:
News,Money,Savings,Product review

The end of the tax year is almost upon us and, in a last gasp attempt to get us to invest, interest rates on cash ISAs are getting more competitive.

Cheshire Building Society has announced an increase to the interest rate payable on its Direct Cash ISA to a tax-free 3.50% AER - up from the previous 3.35% - bringing it in line with the current market leading deal offered by NatWest's e-ISA.

This new rate increase, which took effect on Thursday, March 22, will apply to new customers as well savers who already hold the product.

What's the deal?

Cheshire Building Society had already increased the rate on its Direct Cash ISA from 3.15% to 3.35%, but has now hiked it again to 3.50% to keep on top of the ISA game.

You will need a minimum of £1,000 to open the account, which can be opened either online or on the phone.

This account allows savers to make unlimited deposits and withdrawals by post, without any additional loss of interest, down to a minimum operating balance of £1.However, you should avoid taking money out of an ISA wherever possible as you lose the tax-free status on any withdrawals you make.  

Any catches?

The headline interest rate of 3.50% includes a deep bonus of 2.50% which ends in September next 2013. At this point the rate you earn will drop to just 1.00%. This will mean you have to look for a new deal to keep earning competitive rates of interest on your cash.  That said, Cheshire's bonus rate is longer than the typical 12 months that applies to many other easy access ISAs.

Another downside with Cheshire's account is that you cannot transfer money in from existing ISAs.This means the maximum you can invest this tax year (up to April 5) is £5,340, and the maximum you can invest next tax year is the new cash limit of £5,640.

However, results from a recent MoneySupermarket poll found that, when choosing an ISA, a high rate of interest was deemed to be far more attractive than an account that accepts transfers in - so this shouldn't deter savers too much.

What are the alternatives?

As mentioned above, NatWest's e-ISA is now the only other ISA on the market offering a tax-free interest rate of 3.50%, but this is a very different product to Cheshire's.

Whereas Cheshire is offering an interest rate of 3.50%, NatWest is only offering this rate if you have savings of £30,000 or more.

This means that you'll only get this rate if you transfer money in from other cash ISAs that have been invested in in previous tax years - and, of course, have this much to invest in the first place. If you are looking to invest just this year's allowance then the rate drops to 3.00%.

If you are able to tie up your savings with a fixed rate cash ISA, you will be able to earn even more on your cash. Cheshire Building Society is also offering an ISA priced at a fixed rate of 4% AER for 18 months which is also market leading over that time frame. Like its easy access Direct Cash ISA, the account requires a minimum investment of £1,000 and does not accept transfers in.

What's the verdict?

With a market leading interest rate, Cheshire Building Society's Instant Access ISA is a great product if you are looking to invest your annual allowance but, as it does not accept transfers, it is not suitable for anyone looking to move their savings from an existing account.

It is also a good product if you feel that you may need to dip into your savings at any point, but you must keep in mind that if you invest the full £5,340 and then make a withdrawal, you will not be able to top up the account in that tax year.

Cheshire isn't the only provider that's hiking its rates, so keep an eye out for others too. Principality Building Society for example, has just upped the rate on its easy access ISA to 3.10% tax-free AER from a previous 2.80%.

The deal incorporates a 1.30% bonus for 12 months, requires a £1 deposit and accepts transfers in.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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Les Roberts

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