New top easy access ISA

Cheshire Building Society has launched a new easy access ISA paying 3.06%...

There are plenty of worse things you could do with £25,000 than put it in a cash ISA. But in the current tight financial climate, I can’t imagine many people are stuck in a quandary over how to use up a wedge of cash this hefty. And that’s why setting a minimum deposit at this level, as Nationwide has done on its 3.10% paying Online ISA, is hardly a move that will benefit the majority.

Fortunately the Cheshire Building Society, a mutual that is oddly enough owned by Nationwide, has thrown savers something of a lifeline by unveiling a new account with a lower minimum deposit as well as a competitive return.

Cheshire BS

The Cheshire Building Society’s Direct Cash ISA Issue 1 pays 3.06% tax-free on a minimum deposit of £1,000. The ISA does allow unlimited, free withdrawals, but you cannot make transfers in from other accounts. So if you already have a cash ISA, you won’t be able to get hold of this account, as splitting allowances is not allowed.

However, as with most easy access ISAs, this account’s rate does include a temporary bonus: 2.06% until 30 September 2013. At this point your return will drop to just 1% and you’ll need to shift your cash to continue getting a healthy rate.

Now, if you’re after easy access to your cash and can’t stump up £25,000 for Nationwide’s 3.10% Online ISA, this deal from the Cheshire is your best bet – providing you have £1,000 to deposit.

However, if you require a lower minimum investment still, you’ll need to put up with locking your savings away for a little while longer to get a decent deal.

Higher returns

Chelsea Building Society is offering 3.20% fixed until 31 July 2013, with a minimum deposit of just £100 – a lower deposit limit than the Cheshire account, and a higher rate. Another plus point is that Fixed Rate e-ISA also allows transfers in from other accounts.

The downside is that you’ll need to lock away your cash for 18 months to get this return. Early closures or transfers out will result in 90 days' loss of interest on the closing balance. It still looks a pretty good deal though.

So is the rest of the ISA market looking?

Best of the rest

Here’s a rundown of some of the best fixed and easy-access ISAs currently available:

So ING Direct is your best option if you absolutely need instant access to your cash and a low deposit level. The account pays 3.00% on balances from £1 but does not allow transfers in from other ISAs.

Virgin Money’s new ‘gimmick-free’ ISA is next, paying 2.85%, followed by the lower rate tier of Nationwide’s aforementioned Online ISA. This version pays 2.75%, but has a minimum deposit of £1,000. Both accounts allow transfers in.

If you’re prepared to lock away your cash, NatWest and RBS’s Preferential Rate ISA is a good option. The one-year account actually pays out more than the Chelsea deal, offering 3.35% tax-free. However to get hold of any of these preferential rates you will need to deposit a minimum of £1,000 and transfer in a balance from another ISA provider. Although you can supplement this transfer with cash deposits or internal transfers, and the interest rate will apply to the full balance.

Longer-term deals

There is also a handful of longer term ISAs stretching for four and five years that offer an even higher return on your savings. Halifax has one of the highest rates - its five-year fixed ISA pays out at 4.40%. Opt for the bank’s four-year issue of this account and you’ll earn 4.30%.

Long-term ISAs can be a good way to maximise returns on your savings. But there are a few downsides: most obviously, you need to be completely sure you don’t need to get at the cash before you open the account.

But also, you could find yourself missing out on higher paying accounts if the Bank of England base rate rises and reinvigorates the ISA market while you still have your cash locked away.

More: Compare ISAs with lovemoney.com | The UK’s best cash ISAs | The best tax-free savings accounts for children