Many of us don't know how much interest we're earning on our cash ISAs. Here are some of the worst paying cash ISAs on the market, along with some better options...
The end of the tax year is fast approaching and that means it’s time to ensure you’ve used up your ISA allowance (currently £5,100 for cash ISAs, £10,200 for stocks and shares ISAs) before the new tax year starts!
However, before you do so, when was the last time you checked how much interest you're earning on your cash ISA? Is it still paying a competitive rate?
A few months ago, I tried to locate the interest rate of my cash ISA and found it to be a bit of a struggle. Manoeuvring your way around the websites of banks and building societies isn’t the easiest job in the world and locating the interest rates of savings accounts and cash ISAs can be a real challenge.
As well as finding it difficult to locate interest rates on websites, you may also find the interest rate is not included in your annual statement or on online banking. And as a result, it can be near impossible to find out how much interest you’re earning.
It’s made even more complicated by the popularity of bonus rates. Many cash ISAs now include a bonus rate for 12 months – so once that bonus rate has expired, the interest rate drops dramatically - meaning you need to find a new home for your savings.
And yet, according to research by Consumer Focus, two thirds of people who opened a cash ISA with a bonus rate did not move to a new account once that bonus rate had expired - no doubt because they hadn't realised the interest rate had fallen.
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What’s more, almost a quarter of savers did not know whether or not their cash ISA even had a bonus rate, while a third of savers who hold a cash ISA have had it for more than five years – suggesting they would very likely get a better interest rate elsewhere.
New rulings
The Office of Fair Trading has ordered all ISA providers to give customers personalised interest rate information by May 2012, making it easier for consumers to know what rate of interest they’re earning.
However, until that happens, it’s up to you to try and find out how much interest your cash ISA is earning.
If you’re struggling to find this information, it’s well worth giving your provider a call to find out (although this in itself can prove problematic if you can’t remember when you opened the ISA or what the account's name is).
But in the meantime, I’m going to highlight some of the worst paying cash ISAs on the market.
The four worst variable rate cash ISAs
|
Provider |
Account |
Interest rate |
Interest on £2,000 after one year |
|
Newcastle BS |
Nova ISA Direct |
0.01% |
20p |
|
Virgin Money |
Cash ISA |
0.10% |
£2 |
|
Santander |
Easy ISA |
0.10% |
£2 |
|
Dunfermline BS |
Direct Cash ISA, Issue 3 |
0.25% |
£5 |
Source: Moneyfacts
As you can see, if you have invested in any of these cash ISAs, you’ll be earning next to nothing on your savings. In fact, with the Newcastle BS Nova ISA Direct, after one year, you’d have earned a total of 20p on an investment of £2,000 – who could possibly get excited about that?
And the top paying rate of 0.25% from the Dunfermline BS Direct Cash ISA would only give you £5 after one year. Hardly worth bothering with, is it?
The four worst fixed rate cash ISAs
|
Provider |
Account |
Interest rate |
Interest on £2,000 after one year |
|
Halifax |
Fixed Rate ISA Saver (1 year) |
2% |
£40 |
|
Yorkshire BS |
Fixed Rate Anniversary ISA (1 year) |
2% |
£40 |
|
Bank of Scotland |
Fixed Rate ISA Saver (1 year) |
2% |
£40 |
|
Shepshed BS |
One Year Fixed Rate ISA, Issue 2 |
2.25% |
£45 |
Source: Moneyfacts
Admittedly, the interest rates on these cash ISAs are a little better – but then they should be, because you’re locking up your money for a year.
But even so, a return of £40-£45 isn’t worth throwing a party for, and I know you can do better than this. So I say it’s time to ditch these rubbish accounts in exchange for something far more competitive!
The top paying variable rate cash ISAs
The table below highlights six of the best variable rate cash ISAs on the market. Be warned that unfortunately, the most competitive cash ISAs don’t allow transfers in – so you can’t transfer funds in from existing cash ISAs.
|
Provider and account |
Interest rate |
Minimum deposit |
Transfers in? |
Need to know |
Interest on £2,000 after one year |
|
3.50% |
£1 |
No |
Tracks 3% above base rate for 12 months. Must be a Santander customer*. |
£70 |
|
|
3.35% |
£500 |
No |
Rate includes 1.65% bonus for 12 months |
£67 |
|
|
3.30% |
£1 |
No |
Rate includes 1% bonus for 12 months |
£66 |
|
|
3.25% |
£1 |
No |
Rate includes 1% bonus for 12 months |
£65 |
|
|
3.20% |
£1 |
Yes |
Rate includes 2.70% bonus for 12 months . Rate drops to 3% if not a Halifax current account customer. |
£64 |
|
|
3.10% |
£1 |
Yes |
Rate includes 1.35% bonus until 31/07/12 |
£62 |
*Must have Santander current account and pay in £1,000 a month, or have a Santander mortgage or investment.
As you can see, overall, you can earn a far higher rate of interest on your cash ISA providing you do some research and hunt out a better deal.
For example, if you wanted to transfer funds in from an existing cash ISA, you’d be looking at a return of £64 or £62 a year on an investment of £2,000 (depending whether or not you’re a Halifax current account holder). This compares to the 20p you’d be offered with the Newcastle BS Nova ISA Direct!
And of course, the more you invest, the greater this return will be.
The top paying fixed rate cash ISAs
The table below highlights nine of the top paying fixed rate cash ISAs:
|
Provider and account |
Interest rate |
Term |
Minimum deposit |
Transfers in? |
Interest on £2,000 after one year |
|
3.30% |
1 year |
£1 |
Yes |
£66 |
|
|
3.10% |
1 year |
£1,000 |
Yes |
£62 |
|
|
3.55% |
18 months |
£1 |
Yes |
£71 |
|
|
3.60% |
2 years |
£1 |
Yes |
£72 |
|
|
3.50% |
2 years |
£500 |
Yes |
£70 |
|
|
4.10% |
3 years |
£1 |
Yes |
£82 |
|
|
3.85% |
3 years |
£1 |
Yes |
£77 |
|
|
4.40% |
4 years |
£100 |
Yes |
£88 |
|
|
4.40% |
4 years |
£500 |
Yes |
£88 |
Again, the rate of return for fixed rate ISAs is far better here. For example, you could be earning £66 in a year for a one year fixed rate cash ISA, compared to the £44 offered by the Halifax Fixed Rate ISA Saver I mentioned earlier.
Again, the more you invest, the greater your return will be. And remember these savings are tax-free!
Of course, you’ll also get a better return if you tie up your funds for longer. But personally, I would be reluctant to lock away my money for too long as interest rates are likely to rise in the near future and you may find your account is no longer competitive when they do rise.
But whatever you do, make sure you’re not earning a pittance on your cash ISA savings. If you are, get switching to a better account today!
More: Get a great cash ISA | There’s 12 days left to save £££ | The top 6 ISA blunders