The ten best instant access cash ISAs
Tuesday, 02 November 2010 12:00
by Ben Salisbury
A cash ISA is a savings account that allows you to keep your money away from the taxman by not paying any tax on the interest you receive. You can invest up to £5,100 every year in a cash ISA.
You can invest a further £5,100 in a stocks and shares ISA, or £10,200 just into a stocks and shares ISA. You can choose to save between different asset classes to spread the risk and opportunity from investing in stocks and shares.
I will focus on the best instant access cash ISAs in this article and will list the ten best current deals later in the article. Instant access cash ISAs pay less interest than longer term fixed deals where you tie your money in for a longer period. There are also conditions as to when and how often you can make withdrawals.
What are the benefits of an ISA
An ISA gives everyone the opportunity to earn money tax-free. If you are able to put in a few thousand pounds each year and not touch it, then within a decade you will earn around £500 a year in interest, on top of the capital. This applies even with the very low rates of interest currently available on ISA's and other savings accounts.
In the current economic climate we need all the help possible to make the most of any extra money and a tax-free ISA remains a handy part of our arsenal for doing this. If you consider that most regular savings accounts pay low rates of interest, then an ISA seems attractive. But if you also consider that you don't have to pay 20 per cent tax (or 40 per cent if you are a higher rate taxpayer), it is even more attractive.
To receive as much interest after tax as an ISA that pays two per cent, a savings account would have to pay two-and-a-half per cent.
Find the best deal on an ISA.
Pitfalls: Transferring an ISA
Many people have an ISA that is no longer paying a competitive rate of interest. If this is the case you can transfer your existing ISA to a new one - but be warned: a lot of the best deals don't accept transfers in.
One of the worst aspects of ISAs for consumers is the transfer process. You cannot simply transfer a sum of money from one ISA provider to another. If you do that you lose the tax- free status of the income from interest. Therefore, you have to let the ISA providers do this.
This is a problem because ISA providers are notoriously slow in doing this. This means you lose days, weeks or even in a minority of cases, months of interest. There is some good news though: The Office of Fair Trading (OFT) launched an investigation and discovered the average ISA transfer took 24 days. As a result, new guidelines came into place at the end of this year which will supposedly take the maximum length of time of an ISA transfer down to 15 days.
Pitfalls: Bonus rates
When you are selecting an ISA, look out for bonus rates. These are great, but they are designed to hook you in to that provider, so remember to transfer your ISA to one that pays a better rate when your bonus rate expires.
Current savings rates
Unfortunately for savers, 2010 has not been a year for high rates. This is because the Bank of England has kept the base rate at 0.5 per cent. So, although this has helped to keep mortgage repayments lower, there has not been much of an incentive for savers.
In April 2010, Santander was offering the market-leading rate for an instant access cash ISA at three-and-a-half per cent, but despite no change in Bank of England base rate since then, you won't find a rate that good today.
That doesn't mean to say that investing in an ISA is not a good idea though. The more you can save now, the more capital the interest will have to work on when rates pick up. So, let's take a look at the ten best instant access cash ISA's currently available.
Find the best deal on an ISA.
1: Halifax ISA Direct Reward. This account has the top rate of 2.8 per cent, it accepts transfers in and can be opened and accessed online, by telephone, in a branch or by post. The account is available to new and existing customers. Some qualifying current account holders will get three per cent interest, which includes a 0.2 per cent rewards bonus. You have to pay in at least £1 and you will need to keep a balance of at least £1 for the 12 month reward period.
2: Principality BS e-ISA Issue 2. This account also pays 2.8 per cent, but this includes a one per cent bonus for the first 12 months, so you should consider moving your money at the end of the bonus period. This is the only difference from the Halifax account.
3: Santander Direct ISA Issue 6. This pays 2.75 per cent but a whopping 2.25 per cent is in the form of a bonus for the first 12 months. You can access your money instantly and transfer money in. This feature is key to this product because the rate is only available on balances of £9,000. For balances below this level you can get two percent interest. It is available online, by telephone, in a branch or by post.
4: AA Access ISA. The interest rate for this account is 2.7 per cent, one per cent of which is a bonus paid for the first 12 months. The minimum investment is £500. You can transfer money in and it can be opened and accessed online, by telephone, in a branch or by post. The account is available to new and existing customers.
5:Birmingham Midshires ISA Extra. This account also pays 2.7 per cent, again with one per cent as a bonus rate, though on this occasion it lasts for 15 months. The account accepts transfers in and can be opened via all the usual methods.
6: Saga ISA Saver. This rate comes in at 2.6 per cent and includes a one per cent bonus for the first 18 months. It accepts transfers in, can be opened by the usual methods and you can make unlimited withdrawals without penalties. The minimum investment amount is £500.
7: Lloyds TSB Cash ISA Saver. No dual account requirements or minimum investments here and the interest is 2.35 per cent, though 1.35 per cent of this is as a bonus for the first 12 months.
8: Nationwide e-ISA. You must have a Nationwide card account to open this instant access cash ISA. It pays 2.5 per cent, but more than half of that is made up by a 1.35 percent bonus rate that lasts until the end of June 2011. It accepts transfers in, can be opened by the usual methods and you can make unlimited withdrawals without penalties.
9: NatWest e-ISA. The main drawback here is that you have to invest at least £30,000. If that hasn't put you off it pays 2.5 per cent and a reasonable two per cent on balances between £1 and £30,000.
10: Barclays Golden ISA. Back in April this had one of the top rates but it has slipped since. It still pays 2.08 per cent, which includes a one per cent bonus for the first 12 months. One drawback is that you cannot transfer funds in. You also need to hold or open a Barclays Current Account to get access to this product.
Find the best deal on an ISA.
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