Who's Winning The Cash ISA Race?
Find out which Cash ISAs offer the best interest rates. And hurry! This year's deadline is approaching fast...
This article first appeared in an email in our 'The Good, The Bad And The Ugly' series.
Wouldn't you like to know about an individual savings account that doesn't tie up your savings for years on end or involve any risks, yet offers a decent, tax-free return that easily beats inflation? Sounds too good to be true, doesn't it?
But they do exist. I am, of course, talking about cash ISAs which is the topic of today's `The Good, The Bad And The Ugly' article.
There's no question cash ISAs fall into the `good' category of financial products. Actually, I think they're very good and if you're thinking about building up a nest egg, you really can't go far wrong with one of the best buys.
I imagine many of you are already familiar with ISAs. Recent statistics suggest almost one in two of us have one sort of ISA product or another. But if you're new to the ISA game the acronym stands for Individual Savings Account and the most important thing you need to know is they allow you to save cash and save tax at the same time.
Each tax year you're entitled to an ISA allowance which you must use or lose by the 5th April. You can save up to £3,000 in cash by this deadline. After the 5th you'll get a new allowance which is being raised to £3,600. So you can save even more without losing a single penny to the taxman.
There aren't many things more Foolish than saving tax, which is one of the reasons why I rate cash ISAs so highly. What's more, the best buys offer some really great rates. Have a look at the current market leaders:
Top Six Cash ISAs
Company | Account | % AER | Notice | Minimum Deposit | Introductory Bonus |
|---|---|---|---|---|---|
Barclays Bank | Tax Haven ISA | 6.50% | Instant | £1 | 1% bonus for 12 months |
Scarborough BS | Notice ISA | 6.30% | 30 days | £1,000 | None |
Abbey | Direct ISA | 6.25% | None | £1 | Preferential rate for 13 months from account opening* |
Alliance & Leicester | Direct ISA Issue 4 | 6.25% | None | £1 | 1% bonus until 31.05.2009 |
Saffron BS | Mini Cash ISA 60 Day Notice | 6.25% | 60 days | £1,000 | None |
Easy Access ISA | 6.10% | None | £1,000 | None |
*= Rate reduces to 4.75% AER variable on balances up to £8,999 and 5.25% AER variable on balances of £9,000 and above.
The ISA season is already well under way which has seen interest rates on many top cash ISAs increase over the last few weeks.
As the end of the tax year deadline approaches, ISA providers are stepping up their campaigns to win as much of your business as possible before 5th April. As a result interest rates on many top cash ISAs have increased over the last few weeks - this gives you a great opportunity to get a good deal on your savings.
Barclays has stormed into the lead with an impressive 6.50% AER on its instant access Tax Haven ISA. But this rate includes a 1% bonus which will disappear after 12 months. Once the introductory bonus has gone, it'll definitely be worth your while comparing the new rate with the rest of the market to make sure it still measures up.
Cash ISA transfers
In fact, all the rates shown are variable which means they may not always be at the top of the best buy table. If you choose an ISA with a great headline rate which is cut back later on, you should seriously consider transferring it to a more competitive account.
Five of the accounts shown above accept transfers so even if you already hold cash ISAs you can move them around as much as you like to chase the best rates. Unfortunately, the only one that doesn't take transfers is Barclays but, with a generous rate for new money, I suppose you can't have everything!
Transferring cash ISAs is pretty straightforward too. All you need to do is approach the new provider who will usually ask you to complete a simple transfer form. They'll do everything else for you. It's as easy as that, so there's no reason why you should be stuck with a below par rate.
It makes no sense to pay tax when you don't need to. Even the best ordinary instant access savings account - Alliance & Leicester's eSaver - offers a gross rate of 6.50% but this can't compete with the top cash ISA. A gross rate of 6.50% provides an annual return of just 5.20% after tax for basic rate taxpayers and a pitiful 3.90% for higher rate taxpayers which isn't even keeping pace with inflation*.
So my message is clear. For a simple savings account, cash ISAs are the place to be. But time is running out, so don't forget to visit The Motley Fool ISA Centre and get signed up before the deadline.
*= Inflation measured by the Retail Prices Index (RPI) is currently 4.1%
> Get a high-interest Cash Isa with the Fool.
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