Review of the week: Halifax Direct Reward ISA

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Published:
09 March 2010
Topic:
News,Money,ISA,Savings,Product review

The countdown is well and truly on if you want to use your ISA allowance this year, as the tax year ends on 5 April. Halifax has launched a new cash ISA to try and capitalise on the last-minute dash as savers rush to shelter money from the taxman.

Its Direct Reward ISA pays 2.60% on balances of £1,000, but is it a deal worth taking advantage of? Read on to find out...

What's the deal?

The Halifax Direct Reward ISA pays an annual equivalent rate of 2.60%. This is variable but it doesn't include a bonus. However, it is a 12-month product. After the first year it is transferred to the ISA Saver Direct, which is currently paying 0.50%.

The minimum investment is £1,000 and, although withdrawals are permitted, you must keep a balance of at least £1,000 during the first year.

As well as being able to invest this year's cash ISA allowance (£3,600 if you're under 50, £5,100 if you will be 50 or over on 5 April), you can also transfer money from other cash ISAs that you invested in previous tax years.

Are there any catches?

Withdrawals are allowed but you can only make four during the first year, any more than that and you'll be charged a penalty.

The initial rate of 2.60% is competitive, but it will plummet once the 12-month reward period ends. At that point, it becomes a standard ISA Saver Direct, the rate on which is a much-less-impressive 0.50%.

Verdict

This isn't the best cash ISA deal available at the moment (read our article 'The best cash ISAs unpicked' for more) but it is a competitive offering and the fact you can transfer money invested in other tax years, as well as investing this year's allowance, is a big plus.

As with many of the leading ISA accounts, the rate will drop after the first year, so you should look to move your money again at that point.

Top tip

If you have money in cash ISAs from previous tax years, check what rate of interest you're earning on it. Even if the account was competitive at the time you opened it, chances are it probably isn't any more.

If that's the case, transfer it into a better paying account. You can make an ISA transfer without losing the tax-free status on that money. Make sure it's a transfer though - if you close your existing account first, it will be classed as a withdrawal and you will lose that valuable tax break.

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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Clare Francis

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