Rates on cash ISAs rise

The cash ISAs for new customers are now better than they were six months ago. Neil Faulkner reviews the best of the bunch.

Six months ago, just two easy-access ISAs were offering a rate of 2.65% per year or above. Now, I've searched hard for all of those currently available to new applicants, and I've found seven paying at least 2.65%. (As always, I've excluded ISAs that are for existing customers only and ones that have onerous conditions, such as penalties for making withdrawals.)

Here are those seven top ISAs:

Top seven easy-access ISAs

All data comes from Moneyfacts and the banks' own websites.

The Barclays' Golden ISA rate of 3.1% is the most competitive, with the downside being it accepts no transfers in from old ISAs. The best that accept transfers in are Alliance & Leicester's and Santander's Direct ISAs (which are part of the same banking group).

The small print is not clearly written for the Santander and Alliance & Leicester deals, leading some readers to believe that, if you have £9,000 or more with these ISAs, the first £9,000 will receive a lower interest rate. However, lovemoney.com editor Donna Werbner, spoke with Santander back in January, who said that the higher rate (currently 2.75%) is paid on the full amount, provided you have £9,000 or more in the account.

Some of the ISAs in my table have bonuses that are fixed for 12 to 18 months, which act as short-term guarantees that the rate won't drop to zero, but all the guarantees are way too pathetic to warrant our attention; if your ISA rate dropped as low as the 'guarantees', the ISA wouldn't be worth keeping.

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Ones that didn't make it

Here are the easy-access ISAs that didn't quite make it into the above table, but are worth a mention:

Nationwide e-ISA:

• 2.75% AER variable.
• Minimum deposit £1.
• Transfers in allowed.
• Guaranteed to be 1% AER or above for a year.
• Excluded from the table because it's for existing customers only – you must open a card account to get this ISA.

National Savings & Investments Direct ISA:

• 2.5% AER variable.
• Minimum deposit £100.
• No transfers in allowed, except from the NS&I Cash ISA.
• It's rate isn't high enough to get in the table, but some lovemoney.com readers believe that it's less likely to lower its rates within a year.

Post Office's Cash ISA:

• 2.25% AER variable.
• Minimum deposit £100.
• Transfers in permitted.
• Guaranteed to pay 2% or above for 12 months. Whilst the overall rate wasn't high enough for my table, this ISA has the best guarantee I could find.

And the best of the other ISAs

It's not just easy-access ISAs that have got better.

Whilst it frequently makes sense to keep our savings flexible in easy-access accounts, other accounts can be very suitable. To round off this top ten piece, I'm going to pick the best three from other types of ISA account, as they have also improved a little over the past six months.

Coventry Building Society CallSave 1 year Fixed Rate ISA:

• 3.25% AER fixed for 12 months.
• You must deposit exactly £5,100 to get the deal.
• No transfers in allowed.
• Withdrawals not permitted for 12 months, although early closure is possible with a big penalty of 120 days' loss of interest.

Post Office Fixed Rate Cash ISA:

• 3% AER fixed for 12 months.
• Minimum deposit £500 and maximum £5,100.
• Transfers in permitted (up to a total of £5,100).
• Withdrawals not permitted for 12 months.

Kent Reliance Building Society Direct Cash ISA:

• 3% AER fixed till end 2011 (about 19 months).
• Minimum deposit £100. Additional deposits are permitted until the offer is withdrawn to new customers.
• Transfers in permitted.
• Withdrawals or closures are permitted during the deal period, but with heavy penalties.
• The main risk with this one is that better ISAs will turn up before the 19 month deal is over, and your money will be trapped here. However, I think some of you will be interested in it, so it scrapes on to my list.

ISAs that didn't make it

There are no ISAs in my top ten that require you to give advance notice before making withdrawals, because none of them currently compete with easy-access ISAs. The same goes for regular saver accounts, although one is worth a special mention.

Manchester Building Society Regular Saver ISA:

• 4% AER variable. (It's unusual for regular savers to be variable, and it's why this didn't make my top ten.)
• Pay in £100pm to £425pm.
• One withdrawal allowed before you're penalised with massive loss of interest.

There are plenty of ISAs offering two, three, four or five-year fixes, but even the best pay just a little more than the other ISAs mentioned in this article. It's not worth the risk of tying your money in for such a very long time for such small gains, so none of them made the cut.

As usual, I've been as thorough as possible, but let me know if you think I've missed a possible contender using the comments section below.

Compare even more cash ISAs and savings accounts through lovemoney.com.

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