The annual battle for last-minute Isa money has begun with Abbey, Alliance & Leicester (A&L) and Barclays all launching new products. However, millions of people plan to shun these deals. Research carried out by moneysupermarket.com found that only 32% of people plan to use their Isa allowance this year.
Abbey and A&L are trying to attract customers by offering a mouth-watering rate of 10%. However, there are catches: A&L's Premier Isa Issue 2 is only available to new customers who open a Premier, Premier 50 or Premier 21 current account, while Abbey's Super Isa Issue 2, requires customers to invest an equal amount into the bank's Guaranteed Growth plan, or one of Abbey's equity funds.
The Guaranteed Growth plan is an equity-backed investment that offers 100% capital protection - this means that you will get your capital back in full even if the FTSE 100 falls. Investors opt to lock their money away for either a three-and-a-half or six-year term and in addition to this protection, they will receive a minimum return of 6% or 18%, depending on which term they opt for. If the stock market rises over the term, they will get 50% of any growth.
Other options
If you would prefer a more straight-forward account, you won't be able to earn a 10% return, but there are still some great rates available.
Barclays' Tax Haven Isa, which launches on March 3 will pay 6.50%. This is available online to existing Barclays account holders, but new customers have to apply through a branch. Alternatively, you can earn 6.30% with Scarborough building society's Notice ISA while Abbey and A&L both offer easy access accounts paying 6.25%, and Icesave's Isa has a rate of 6.10%.
If you think interest rates may fall again, you may prefer a fixed rate account, Nationwide building society has the best one-year deal at 6.15%.
However, it would seem that many savers don't understand the benefits Isas offer. According to Lloyds TSB, 90% of Isa investors do not make use of their full allowance and Moneysupermarket's research found that 83% of people weren't aware the allowance is rising next year.
Isa rules
You can invest up to £7,000 a year into an Isa, the returns of which are tax-free. This can either be invested in a single maxi Isa, within which you can hold shares or investment funds, or you can split it between two mini Isas - £3,000 can be invested in a cash account and the remaining £4,000 in a stocks and shares Isa.
The allowance rises to £7,200 for the next tax-year, which starts on April 6. Another rule change means that anyone opting for mini Isas will be able to split their allowance 50:50 so the cash Isa allowance will rise to £3,600.
Even if you cannot afford to invest your full allowance, it is still worth taking advantage of this tax break. Cash Isas work like any other savings account, the only difference being that interest is paid free of income tax.
While you can only invest a maximum of £3,000 a year in a cash Isa - £250 a month - you can transfer money invested in previous years to a new account without losing the tax breaks. Therefore, if you have money in an account that is no longer competitive, you should look to move it.
Not all products accept transfers however, so this is something to bear in mind when comparing deals. Barclays' Tax Haven Isa accepts new money only, but most of the other leading deals are available for transfers as well (see table below).
Check the small print
As with standard savings accounts, there are other things to watch-out for when comparing cash Isas. These include bonuses and notice periods - the Barclays account includes a one percentage point bonus which lasts for 12 months, so after the first year the rate will drop to 5.50% (and maybe lower if interest rates fall again). A&L's Direct Isa Issue 4, which currently pays 6.25%, also includes a 12-month bonus of one percentage point. With the Scarborough deal, you must give 30 days' notice before making a withdrawal.
If you want an easy access account with no catches, Icesave's account is the best option. The only drawback with this deal is that you must pay in at least £1,000 when you open an account.
There are loads of other products to choose from however, but you need to act quickly and open an account before April 5 - if you fail to do so, your 2007-2008 Isa allowance will be lost forever.
Leading deals at-a-glance
|
Provider |
Name |
Rate |
Minumum
Deposit |
Notice/
Term |
Accept transfers from another ISA? |
|
Barclays |
Tax Haven ISA |
6.50%* |
£1 |
Instant |
No |
|
Scarborough BS |
Notice ISA |
6.30% |
£1,000 |
30 Days |
Yes |
|
Alliance & Leicester |
Direct ISA Issue 4 |
6.25%** |
£1 |
Instant |
Yes |
|
Abbey |
Direct ISA Issue 2 |
6.25%*** |
£1 |
Instant |
Yes |
|
Nationwide BS |
Fixed Rate Issue Bond |
6.15% |
£1 |
1 Year |
Yes |
|
Icesave |
Easy Access ISA |
6.10% |
£1,000 |
Instant |
Yes |
* Includes a bonus of 1.00% payable for 12 months, product available from from March 3 2008
** Includes bonus of 1.00% payable until May 31 2009
*** Available from March 3 2008
Sourced by www.moneysupermarket.com February 26 2008
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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