Earn 5.15% on easy access savings

Earn a fantastic rate on your savings with this clever trick.

Most savers take out cash ISAs in the run up to the end of the tax year deadline on 5 April. This April you may not have been so keen to sign up because many cash ISAs offered rates which trailed ordinary taxable savings accounts. And, even though those rates were tax-free, it probably wasn’t enough to tempt you to hand over your cash.

But if your ISA allowance still remains unused, I’ve got a new deal for you this week which might just do the trick. It’s the new Cash ISA Direct Reward from Halifax, and it has stormed into the lead of the cash ISA best buys with a rate of 2.8% tax-free.

If you take out a Halifax current account (or if you're already a Halifax current account customer) and you fund your account with £1,000 or more each month,  you’ll enjoy a loyalty reward of 0.2%, pushing the rate up even higher to 3%, tax-free.*

This top rate now beats the best account the easy access savings market has to offer. After all, the top account - the AA Internet Extra - only offers a taxable rate of 2.8%. So this generates a return of just 2.24% in the hands of a basic rate taxpayer and 1.68% for a higher rate taxpayer once tax has been deducted.

Cash ISA Direct Reward key features

This new market-leading cash ISA is available to new and existing customers alike. The account offers penalty-free easy access whenever you need it without notice, and can be opened with as little as £1.

The variable rate will effectively apply for a period of 12 months. After this time, Halifax will contact you with the option to review your ISA to ensure you have the best deal. Don’t forget, ISA accounts across the whole market will be open to you, so don’t take the new rate Halifax offers you unless it’s highly competitive. If the rollover account doesn’t measure up, you have every right to transfer your ISA money elsewhere.

And, of course, if the Halifax rate falls during the 12-month period, you can switch to the new market-leader as soon as it comes onto the market as long as ISA transfers are accepted.

On the subject of transfers, the Halifax Cash ISA Direct Reward also accepts transfers in from other ISA accounts. So that means, if you have old ISAs from previous tax years which are now earning poor rates, you can take advantage of this top return by moving them over the Halifax. In this way, you can make sure all your tax-free savings are generating the best possible rate.

Plus you may find it easier to have all your ISAs in one place.

Bump up your return

The Halifax ISA certainly offers a competitive rate given that the average cash ISA pays just 2.15%, according to lovemoney.com partner Moneyfacts. But even if a rate of 2.8% to 3% tax-free fails to whet your appetite, you can bump up your return to more than 5%. Here’s how…

If you don’t already have a Halifax current account and you’re prepared to switch, you can qualify for the higher ISA rate by choosing a qualifying Halifax account. The Halifax Reward account would be a good choice here. As long as you fund it with £1000 plus every month, you’ll earn a £5 monthly reward. This even applies if your account goes overdrawn.

On top of that £60 a year, you’ll also receive a £50 cash bonus when you switch. So taking the ISA rate and monthly rewards into account, and assuming you use the full cash ISA allowance of £5,100, here’s a summary of the total return you could earn over the next 12 months:

Market-leading returns

As the table shows, if you squirrel away £5,100 into your ISA, and payin at least £1,000 of your salary every month into the Reward account, then you’ll earn £263 after a year. That’s equivalent to a rate of 5.15%.

To earn a return that good in an ordinary taxable savings account, basic rate taxpayers would need a rate of at least 6.44%, while higher rate taxpayers need 8.58% and additional rate taxpayers need 10.30%. I don’t think I need to tell how impossible this would be to achieve anywhere else in today’s savings market.

On the other hand, if you’re quite happy to leave your current account where it is, you’ll earn the lower rate of 2.80%, which generates a return of £142.80 over the year.

Whichever route you decide to take, bear in mind that using up your ISA allowance sooner rather than later always makes good financial sense so you can start earning a tax-free return at the earliest opportunity. And now that ISA rates are improving, it’s an even more savvy move.

*You'll also earn this extra rate if you hold an Ultimate Reward Current Account, but this account costs £12.50 a month so may not be worth getting for the extra rate. 

Compare ISAs, savings accounts, and current accounts at lovemoney.com

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