ISA Countdown: Part two - The best cash ISA deals
If you are looking at investing money into a cash ISA before the deadline on April 5th you need to act quickly if you want to put your funds into any of the best-buy options.
In recent weeks the best easy-access cash ISA products have been pulled just days after being launched. It is likely that some better deals will be launched in the next two weeks, but you may need to be quick off the mark if you want to take advantage of them.
Cash ISAs – The basics
You can invest £5,100 into a cash ISA this tax year. The tax year end on April 5th, so you need to act fast if you want to use your ISA allowance this year.
With a normal savings account you have to pay interest on the income you earn on your savings. An ISA works like a protective wrapper to hide savings income from the taxman. Cash ISAs were introduced in 1999 by the government to encourage us to save.
The benefits of a cash ISA
Tax-free income
Cash ISAs offer the most effective rate for all adults in the UK to earn some money without having to pay any tax on it. This year a good rate comes in at about three per cent, although the best are now paying close to 3.5 per cent and there could be some better deals being announced during the next two weeks.
If you have the full £5,100 to invest, over the course of 12 months you would earn £153. This is not a huge amount, but it is tax free. Although rates are lower for cash ISAs than for investment ISAs, the convenience and flexibility has encouraged four times more of us to open cash ISAs.
Instant access
Although rates are higher on fixed rate bonds and investment ISAs, you cannot access your money when you want without a fee or losing interest. A big advantage of a cash ISA is that you can access your money whenever you choose without any penalties. This makes it ideal to use your cash ISA to save for a holiday or big-ticket items.
The pitfalls of a cash ISA
Bonus rates
The most important factor when considering which cash ISA to invest in is the rate of interest you will earn on your savings. Most of the best rates for ISAs will be a bonus rate that only applies for a certain period, usually one year.
You should make a note to warn you a few weeks before the bonus rate ends so that you can transfer your funds to a better deal in good time.
Transferring your ISA
A word of warning about transferring your ISA – ISA providers have a bad reputation for delaying the transfer, but new laws passed mean that the legal limit for transfers is now 15 days.
In most circumstances your new provider will organise the transfer of your ISA from your previous provider. Some new ISAs start paying interest from the day that you apply for the account but others don’t until the transferred funds are in your account.
If you have an existing ISA balance that you would like to transfer check if your new provider accepts transfer’s in as not all of the best deals do. Also, watch out for transfer fees as these can undermine the interest rate. There is little point in switching to a cash ISA that pays a good rate of interest if it is eaten up by a transfer fee.
Read more: ISA Countdown Part one - Top tips and best ISA options
The top ten cash ISAs
1) Account Name - AA Internet access ISA
Interest Rate (AER) - 3.35%
Term/Notice - Instant
Transfer In - No
Access - Online
Comments: Minimum investment £500. 1.65% bonus fixed for 12 months. Transfers in from other ISAs are not allowed. Interest calculated daily but credited to account annually.
2) Account Name – Santander Flexible ISA
Interest Rate (AER) - 3.30%
Term/Notice - Instant
Transfer In - No
Access - Online, Telephone, Branch or post
Comments: Guarantee to track 2.80% above the Bank of England base rate for 12 months. Available to new customers. Minimum investment £1. Rate is guaranteed for 12 months, you may want to move your money at the end of this period. Transfers in from other ISAs are not permitted.
3) Account Name – Nationwide e-ISA
Interest Rate (AER) - 3.10%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or post
Comments: Minimum investment £1. Transfers in accepted. Rate includes a bonus of 1.35 per cent fixed until 31/07/12, you may want to move your money at the end of this period. New customers will need to open a card account before applying for the e-ISA.
4) Account Name – Halifax ISA Direct Reward
Interest Rate (AER) - 3.00%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or post
Comments: 3.20% AER for Halifax qualifying current account holders (includes 0.20% rewards bonus). Transfers in accepted. Available to new and existing customers. Minimum investment of £1
You will need to keep a balance of at least £1 for the 12 month reward period.
5) Account Name – West Bromwich BS WeBSave ISA
Interest Rate (AER) – 2.85%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or post
Comments: Minimum investment £1,000. Transfers in allowed. Rate includes a bonus of 1.12 per cent until 29/02/2012, you may want to move your money at the end of this period.
6) Account Name - Northern Rock e-ISA
Interest Rate (AER) - 2.65%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or Post
Comments - Minimum investment £1. No introductory bonus rate or withdrawal restrictions.
7) Account Name - Lloyds TSB Cash ISA Saver
Interest Rate (AER) - 2.65%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or Post
Comments - Minimum investment £1. Transfers in accepted. Available to new and existing Lloyds TSB customers. Includes a fixed bonus of 1.65% AER/Tax Free for 18 months. Rate includes a bonus, you may want to move your money at the end of this period.
8) Account Name - Intelligent Finance Cash ISA
Interest Rate (AER) - 2.50%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or Post
Comments - Minimum investment £1. Transfers in accepted. No introductory bonus rate or withdrawal restrictions.
9) Account Name – Northern Rock easy ISA
Interest Rate (AER) - 2.50%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or Post
Comments - Minimum investment £1
10) Account Name – Santander Direct ISA Issue 7
Interest Rate (AER) - 2.50%
Term/Notice - Instant
Transfer In - Yes
Access - Online, Telephone, Branch or Post
Comments - Transfers in accepted. Minimum deposit £14,000 but you can get 0.50% AER on balances over £1. Unlimited withdrawals without penalties. Rate includes a bonus of two per cent for twelve months, you may want to move your money at the end of this period.
It is important to remember that because interest rates have been at an all-time low level of 0.5 per cent for the last two years, savings rates are not as good as they have been. If you are struggling to put money into an ISA in this tax year, you may be better off waiting and investing next year when interest rates may be better.
If you have got spare funds you can use then it is always a good idea to invest them in an ISA. Despite the poor rates the best cash ISA deals still represent a good way to receive an interest-free income.
Use the Myfinances.co.uk comparison tools to find the best deal on a cash ISA.
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