Know your limits
First off, you’ll need to know how much you can save. In this tax year – which ends on April 5 – you can invest up to £5,760 into a cash ISA and the same amount into a stocks and shares ISA. Or you can choose to invest your full £11,520 allowance in stocks and shares. If you are nervous about investing in stocks and shares and prefer to stick with cash savings, then there are plenty of cash ISA options to choose from.
Bear in mind, however, that because returns from cash ISAs are low, inflation will gradually erode the spending power of your money. Although the Consumer Prices Index (CPI) measure of inflation fell from 2.0% to 1.9% in January – which is below the government’s target – there are still very few savings accounts which can keep pace with the cost of living. And that’s why it is so important to try to track down the best rates and make the most of your allocated tax-free returns.
Latest variable rate ISAs
So what are the latest ISA offerings?
If you want to be able to access your cash ISA savings easily, then a variable rate easy access account is the one for you. Nationwide has recently launched its Flexclusive ISA (Issue 7) which pays 1.75% tax-free, so long as you have a Flex account with the provider. This variable rate ISA can be opened with a minimum investment of £1, and allows unlimited withdrawals and deposits.
Nationwide has also just introduced the Easy Saver ISA (Issue 5) – a deal which is available to all customers and not just those who already have current accounts or choose to switch to them. This account pays a less generous 1.60% tax-free and again allows unlimited withdrawals and deposits.
While these accounts do not accept transfers from existing ISAs, Nationwide has also launched an Instant ISA Saver account that does – and this pays 1.50% (variable). You can read more about this account with Melanie Wright’s Focus On.
It’s worth noting that Nationwide has now scrapped upfront bonuses on its new ISA deals, and on other new savings accounts, in a bid to simplify its range. This means your returns won’t suddenly plummet after a certain period of time. However, remember the rates are variable so could still fluctuate.
Santander, as part of its new range of ISA deals this year, is offering the Direct ISA Saver which is available to both new and existing customers. It pays 1.00% (variable) on your cash for the first 12 months after which time it will revert to an ISA Saver account.
HSBC has also removed all introductory bonus rates from its Loyalty ISAs (and other savings accounts), but you must top up the account at least once each year in order for the Loyalty rate to stay in place. If you don’t do this, then after the initial 12-month Loyalty rate finishes, the rate will drop to just 0.5%.
The bank’s new Loyalty ISA, which is for existing customers only, pays between 1.40% and 1.60% depending on the kind of current account you have. For example, customers with a Premier account qualify for the HSBC Loyalty ISA Premier which pays 1.60%, while those with Advance accounts qualify for the Loyalty ISA Advance account, paying 1.50%. If you have a HSBC current account, you will qualify for the Loyalty ISA Current Account, paying 1.40%.
Lloyds Bank’s Cash ISA Saver, another newcomer to the market, offers 1.25% (variable) on balances from £1, but you will need £20,000 or more to start earning 1.50%. The rates you see also incorporate a bonus of between 0.75% and 1.00% respectively for the first 12 months so be sure to move your money this time next year. The minimum opening balance is £3,000, though the deal can be operated from £1. It is available to new and existing customers and accepts transfers in from other ISAs you may already have.
The market-leading variable rate cash ISA, however, is the lesser-known Earl Shilton Building Society’s 90 Day Notice ISA, which pays 1.80% on a minimum investment of £10. As it says on the tin, you will need to give 90 days’ notice every time you make a withdrawal from this account, and transfers in are not permitted.
The Islamic Bank of Britain’s Sharia’a Compliant Notice Cash ISA also pays a variable rate of 1.80% but requires 120 days’ notice to access your funds. However, this deal does allow transfers.
Best fixed rate ISAs
If you can afford to leave your savings untouched for a while, you can often earn slightly higher returns by investing in a fixed cash ISA. This kind of account pays a fixed rate of interest for a set period of time. However, once you’ve opened the ISA, you typically will not be able to make any withdrawals – or at least be penalised if you do.
Santander, as part of its new range, is offering a 2 Year Fixed Rate ISA which is available to everyone and pays a competitive 2.00% tax-free. However, if you hold a 123 current account, credit card or you are a Select customer with Santander, you will qualify for a higher rate of 2.30% over two years, which is a market-leader in its camp. These Santander fixed deals ISAs accept transfers in and require a minimum opening balance of £500.
Lloyds Bank has also just increased the rate on its range of fixed rate ISAs so that its 2 year Fixed Rate Cash ISA now pays 1.75% on balances of just £1. Only when you invest more than £20,000 or more though, will returns rise to 2.00%.
If you are happy to tie your money up for longer, Lloyds Bank’s 3 year account pays 2.00% on balance of £1 or more (or 2.25% if you have more than £20,000 to invest). And its 4 year account pays 2.15% on balances from £1 and 2.40% on balances over £20,000.
As with Lloyds’ variable rate ISA account, the minimum opening balance on its fixed rate deals is £3,000 but they can be operated from £1. All new ISAs are available to new and existing customers – and all accept transfers in.
The current market-leading one-year fixed rate ISA is Britannia Building Society’s Fixed Rate Cash ISA which pays 1.85%. However, you’ll need to invest this year’s full allowance to qualify.
Check out our cash ISA channel here. When searching for the best deals, remember to click on ‘see all cash ISA accounts’.
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.