This means savers no longer face the dilemma of choosing between a fixed rate ISA, or variable rate one that offers easy access to your money - instead, you can spread your tax-free allowance between both. This is what the four accounts look like:
- Easy access ISA: Pays 1.50% tax-free AER (annual equivalent rate). The rate, which is variable, incorporates a fixed 0.85% fixed bonus for the first 12 months. You can save between £100 and £15,000 this tax year (2014/2015) and access your cash when you like.
- One-year fixed rate ISA (Issue 1): Pays a fixed 1.55% tax-free AER for 12 months. You can save between £500 and £15,000 in this tax year. You will be charged 90 days’ interest if you access your cash before the end of the term.
- Two-year fixed rate ISA (Issue 1): Pays a fixed 1.95% tax-free AER over two years – which is market leading. You can save between £500 and £15,000 in this tax year. You will be charged 180 days’ interest if you access your cash before the end of the term.
- Holding account: This is automatically set up when you open your Post Office Online ISA and pays a variable 0.65% tax-free AER. You can use it to consolidate ISA funds (the account allows transfers in) before choosing which of the three above options to pay into. You’ll need at least £100 to open the holding account but it can be topped up in increments of £1 thereafter.
All four accounts are held within ONE tax-free wrapper which means you can switch your cash from one to the other without losing your tax-free benefits.
At a tax-free 1.95%, the Post Office’s two-year fixed rate ISA is market-leading – and the easy access deal at 1.5% is top of the tables too for transfers in.
You can find a better ISA rate over one year though as Virgin Money offers 1.7% tax-free.
|“All four accounts are held within just ONE tax-free wrapper of £15,000..."|
Who is it good for?
The Post Office Online Cash ISA is a great compromise for anyone who is unsure whether to lock their cash away in a fixed rate bond for higher returns, or retain access to it with a lower-paying variable rate account.
And if you were thinking of either an easy access ISA deal or a two-year fixed rate account this tax year anyway, it’s table-topping for both.
While you will be able to move your cash between these four accounts without losing the tax-free perks, if you take out money out of either the one or two-year fixed rate bonds, you'll be charged a penalty of 90 and 180 days' interest respectively.
And if you plump for the easy access deal, you'll need to move your cash again in 12 months as that's when the bonus expires and the rate drops to 0.65% (the same as the holding account).
Finally, as with all ISAs, if want to take cash out of the Post Office's ring-fenced tax-free shelter, you won't be able to pay it back in again until your fresh tax-free allowance kicks in at the start of next tax year (£15,240).
What’s the verdict?
The Post Office Online ISA could prove a winner if:
- You are looking for a top 2-year fixed rate cash ISA
- You are looking for a top easy access ISA
- You would like the chance to split your funds between the two
- You have existing ISA funds to transfer in
If there's a risk that you will pay the funds into the holding account and forget about them, or fail to switch your funds to a better home when the bonus rate expires on the easy access account, choose a different ISA. You can get much better deals than 0.65% AER!
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.