The best new Cash ISAs

Here’s a roundup of the best new Cash ISAs as the competition for our 2012/2013 tax-free cash allowance heats up.

The countdown has begun.

Savers have just days left to use their tax-free cash savings allowance of £5,640 for 2012/2013, or risk losing it altogether on the 5th of April.

Usually around this time the competition between providers tends to heat up.

But sadly the race to bring out better deals to attract savers hasn’t really materialised yet, with only a few providers bringing anything noteworthy to the table so far.

More products and changes will likely come, but for now let’s take a look at what’s new and how it stacks up for our savings.

Halifax boosts rates

At the beginning of the month Halifax boosted the return on its three-, four- and five-year fixed rate ISAs by 0.4%.

The changes have positioned these three as market leaders in each of their classes.

The three-year fixed rate ISA pays 3%, the four-year fixed rate ISA pays 3.05%, while the five-year fixed rate ISA pays 3.10%.

You can open any of these with a deposit of £500 and they all accept transfers of previous year's ISA funds.

But while these are market-leading rates they also require you to lock up your cash for significant amounts of time, which could mean your pot loses out when rates start to rise again.  

Leeds gets flexible

Some long-term fixed rate ISAs allow you to withdraw money but this is usually subject to a pretty hefty penalty and anything you withdraw is likely to lose its tax-free status.

But now Leeds Building Society has launched a three-year fixed rate option that allows you to withdraw or transfer up to 25% of your investment during the fixed rate period, without the forfeit.

So say you had deposited £50,000 (the account allows transfers in) but an emergency came up for a home repair or you saw another account with a better rate, you could withdraw or transfer up to £12,500 without penalty.

The money would lose its tax-free status once withdrawn from the ISA wrapper but if you transferred the cash into another ISA instead it would keep it.

However, should you exceed the 25% cap your money will be subject to 120 days' loss of interest or the equivalent of what you withdraw or transfer.

I like the sound of having some flexibility, but it's a shame about the rate on offer. The Leeds Three-Year Fixed Rate Cash ISA pays 2.6%. But you can get a much better rate of 2.80% with the Coventry BS 60-Day Notice ISA - so no need for the three-year jail term on 75% of your cash!

Santander brings the Major back

Santander has also caused a bit of a stir in the countdown to April 5th by launching two market-leading ISAs.

One is the Santander Two-Year Fixed Rate Major ISA, which pays 2.8% to new customers or a juicer 3% to existing 123 current account or 123 credit card customers.

The account offers the best rate for two-year fixed rate ISAs, allows transfers in and has no minimum deposit. Plus it comes with an extra sweetener. Santander has promised to pay a 0.1% bonus at the end of the two-year term if golf star Rory Mcllroy is able to win a Masters tournament.

If you don’t fancy locking away your cash for two years Santander has an equally attractive alternative with its Direct ISA Saver. This account pays a market leading 2.5%, allows easy access to your money and also allows transfers in. But you will need £2,500 to open it.

Nationwide makes a play

Just a week after Santander’s move other two-year fixed rate providers have stirred in response.

Nationwide has increased the rate on its two-year fixed rate ISA by 0.15%, pushing the return up from 2.35% to 2.50%. The move has strengthened Nationwide’s position, but has been unable to take the top spot away from Santander’s Major ISA.

Elsewhere Cheshire, Derbyshire, and Dunfermline building societies have also given a 0.15% boost to their two-year ISA offerings bringing rates up to 2.5%, but again this hasn’t shifted Santander.

All accept transfers in and each (apart from Nationwide) needs £100 to get started.

Personally I don’t fancy locking money away in a two-year deal at 2.5% when Santander's Direct ISA Saver can provide the same rate with instant access!

HSBC rewards Premier customers

HSBC has also joined the race for cash as the 2012/13 ISA season draws to a close.

The bank has increased the rate on its Variable Rate Cash ISA by 0.60%. But this boost will only benefit Premier customers.

The account now pays 2.75% for those with a Premier current account and comes with a 2% fixed bonus for 12 months on balances of £15,000 or over. Those with smaller balances get a rate of 2.25% with the 12-month 2% fixed rate bonus.

This is a great rate for an instant access account. But nabbing the rate means becoming a HSBC Premier customer, which isn’t that easy if you don’t have an annual income of £100,000 or savings of £50,000 with HSBC already!

For more on what you can get as an existing customer read: Exclusive deals banks and building societies offer existing customers.

Skipton competes online

Earlier this month, Skipton Building Society put up selected rates by 0.4% and created a range of new online fixed rate ISAs.

The most impressive offering was the Online One-Year Fixed Rate ISA which pays 2.10%, you can open with £500 and allows transfers in.

Since Metro Bank has withdrawn its one-year fixed rate ISA paying 2.25% to new customers, Skipton's deal now tops the table, but again you can get a better deal on an easy access account paying 2.5%.

Use it or lose it

According to Moneyfacts there were 318 Cash ISAs available in March 2012 with an average rate of 2.56%. Today there are only 241 products to choose from with an average rate of 1.81%.

So as we head towards the close of the financial year, there are slim pickings for our tax-free cash savings allowance.

Yet even though rates are paltry and the products thin on the ground it’s always worth using all or at least some of your ISA allowance each year. That’s because any money in an ISA remains protected from tax for future years meaning it can benefit when rates start to creep back up.

For more on the best home for your Cash ISA allowance read: The best Cash ISAs and Top Cash ISAs for transfers.

More on savings:

The top fixed-rate savings bonds

The best notice savings accounts

The best regular savings accounts

The best instant access savings accounts