Focus on: The Post Office’s Premier Cash ISA

The Post Office has announced that its new Premier Cash ISA will offer a tax-free variable interest rate of 3.01% AER and will be available from the start of the new tax year on April 6.

Although the rate is not market leading, this account comes with a raft of features that could prove very appealing to both new and existing savers. We take a closer look.

What’s the deal?

Available online from April 6 and in branch and over the phone from April 7, the Post Office Premier Cash ISA will allow customers to open an account with just £100 and benefit from a variable tax-free savings rate of 3.01% AER for 18 months.

This is an ISA for the new financial year (2012/13) which means savers will be able to invest a maximum allowance of £5,640 over the next 12 months.

Existing savers can also transfer in any other cash ISAs they currently hold with other providers.

Although the interest rate on the account is variable, which means it could theoretically drop from the advertised 3.01%, it is also backed by the Post Office’s Savings Promise.

This means if there are any changes to the Bank of England base rate (currently 0.50%) between now and January 1, 2013, then the Post Office will change the underlying rate on the account by the same percentage within 30 days of any announcement.

Deposits can be made in branch, by post or over the phone and two free withdrawals can be made each tax year by phone or by post.

Any catches?

The interest rate of 3.01% includes a bonus of 1.26% which ends 18 months after the account is opened. At this point the rate will drop to just 1.75%.

Although this is the longest bonus period currently available on an ISA, it still makes sense to move your money at the end of this period to keep it earning at a competitive rate of interest.

One other possible downside is that you can only make two free withdrawals each year and if a third is required then you will have to either close the account or transfer to another provider. However, if possible, you should avoid taking any money out of an ISA as you lose the tax benefits on any withdrawals you make.

What are the alternatives?

NatWest’s e-ISA is currently offering a market leading rate of 3.50% AER (variable) which includes a 1.00% bonus that is fixed for the first 12 months. Although this bonus is not as long as that offered by the Post Office, it still offers a very competitive rate of 2.50% AER (variable) after the introductory period expires.

The major downside is that the rate of 3.50% is only available on balance of £30,000 or more so if you don’t have this to invest (by way of transferring previous ISA investments) then you will not benefit from this interest rate.

If you are only looking to just invest next year’s allowance of £5,640 then you will be given a rate of 3.00%, which is below that offered by the Post Office.

Another alternative is Santander’s Direct ISA Issue 9 which offers a variable rate of 3.30% AER. However, this ISA ceases to be competitive after 12 months when the rate drops to just 0.50%.

And as the bonus on Santander’s ISA is also variable, any interest you earn is subject to change which could increase or, more likely, reduce the size of the bonus.

The verdict

Although the Post Office Premier Cash ISA doesn’t benefit from a market leading rate, a variable AER of 3.01% is still very competitive, particularly as the bonus lasts for 18 months.

Furthermore, you can benefit from this interest rate by investing just £100 and, as it accepts transfers, it may also be appealing to anyone looking to move their ISA to take advantage of a better rate of interest.

Also, unlike the NatWest and Santander offerings, you can apply in-branch, over the phone or online, making it accessible to anyone that wishes to invest.

Overall, the competitive interest rate and long bonus period help to make this is a really attractive, all-round account whether you are looking to invest for the first time or want to move your money from an existing ISA.

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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