Santander launches market-leading Cash ISA... with a catch

Santander’s new table-topping rate ISA rate isn’t for everyone.

Santander is launching three new Cash ISAs today.

There is a new easy access Direct ISA Saver, which will pay the same variable rate of 1% as the previous issue but you'll need a bigger deposit to open it, £500 instead of £1.

There will also be a new two-year fixed rate deal paying 2% until 1st May 2016 – up 0.2% on the bank's previous offer.

And alongside these deals which are open to all, Santander will also offer a market leading two-year fixed rate deal (also fixed until 1st May 2016) paying 2.30%, available exclusively to new and existing 123 and Select customers.

People with either a Santander 123 Current Account or 123 Cashback Credit Card account, plus those that have been invited to become Select customers, are eligible to apply for the table-topping rate.

All three of Santander’s new ISAs can be opened with a minimum of £500 and will accept transfers of previous year’s subscriptions as well as this year’s £5,760 allowance.

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Exclusivity

Market-leading savings accounts are increasingly being tied to bank and building society current account.

Since the seven-day current account switch service has made it easier for people to move between providers, banks need a reason for people to stay and a reason for people to switch to them.

The rates about to be launched by Santander that are open to all are frankly pitiful, with the bank not even upping the rate on its ISA Saver, but increasing the minimum deposit you need to get it!

But the exclusive two-year ISA is much more attractive. A rate of 2.30% isn't fantastic, but it's the best rate going, with the next best deal paying 2.10%.

Nationwide is another company usings a savings product as bait for current account switches. Its Flexclusive ISA pays a market-leading 1.75% but is only available to new and existing current account holders.

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Kickstarting the ISA season

Normally as we approach the end of the tax year there is a rush of new ISAs trying to capitalise on last-minute savers wanting to use their allowance before the 5th April deadline.

However, so far this year we’ve seen the opposite. Providers have withdrawn leading accounts and the top rates are tumbling.

In the last few weeks Leeds Building Society withdrew its leading five-year fixed rate deal paying 3.05%, while Principality Building Society reduced the rate on its five-year deal by 0.4% from 2.9% to 2.5% and also withdrew its leading three-year fixed rate deal paying 2.25%.

Of course, rates have fallen dramatically over the last few years. The record-low 0.5% Base Rate is partly to blame, but the Bank of England’s Funding For Lending scheme is also a major culprit. This offered banks and building societies the opportunity to borrow cheaply to stimulate lending but the knock-on effect has meant they no longer need deposits from savers to balance their books, so rates have taken a tumble.

This scheme ended in January but so far saving rates have yet to recover.

However, with just under four weeks left until the tax year ends some slightly better rates are starting to trickle through, with Halifax and Nationwide also launching new fixed rates.

The top cash ISAs

Here are the leading fixed rate, notice and easy access ISA deals available at the moment.

To keep updated about the best deals across each category bookmark The best Cash ISAs.

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This article has been updated since its original publication to reflect changes in rates

More on savings:

Why some current accounts beat top savings accounts

The best Cash ISAs

The best Cash ISAs