If you want to make the most of your ISA allowance, act now before you miss the tax-free boat.
If you've been thinking you really should sort out your ISA for this tax year, then stop thinking and start doing! There's little more than two weeks left until the ISA deadline on 5 April so the clock really is ticking more loudly than ever.
Last month I warned time was running out for using your tax-free cash ISA allowance in Bag A Top Cash ISA Today! So, for those of you who missed it, here's an update of all the best deals:
Top Five Easy Access Cash ISAs
Company | Account | % AER | Minimum Deposit | Introductory Bonus |
|---|---|---|---|---|
Barclays Bank | Tax Haven ISA | 6.50% | £1 | 1% bonus for 12 months |
Direct ISA | 6.25% | £1 | Preferential rate for 13 months from account opening* | |
Alliance & Leicester | Direct ISA | 6.25% | £1 | 1% bonus until 31.05.2009 |
Easy Access ISA | 6.10% | £1,000 | None | |
Cash ISA | 6.05% | £1 | None |
*= Rate reduces to 4.75% AER variable on balances up to £8,999 and 5.25% AER variable on balances of £9,000 and above.
As you can see, Barclays is still way out in front with a market-leading rate of 6.50% and a minimum deposit of just £1. Of course, the main attraction of cash ISAs is tax-free interest. To earn an equivalent return outside the Barclays ISA wrapper, a basic rate taxpayer would need to find a taxable savings account with a rate of 8.125% while a higher rate taxpayer would need a whopping 10.8%.
Believe me this isn't going to be easy, so the cash ISA from Barclays is very appealing. Just watch out what happens to the rate after the introductory bonus period ends. If the account begins to fall short, don't think twice about transferring it. More on that later...
Other Cash ISAs in the mix include Abbey, Alliance & Leicester, Icesave and Egg which all break through the 6% barrier. Abbey and Alliance & Leicester both offer bonus rates for a limited period so the same switching advice applies here if the rates deteriorate once the bonus has vanished. This is particularly true of Abbey where the rate will drop by 1% or 2% depending on your balance after 13 months. This could mean your once market-leading ISA may have fallen far from grace next year.
Other Great Cash ISAs
If instant access isn't important to you, there are a couple of a best buy notice accounts which might appeal.
Take a look at Scarborough Building Society's Notice ISA which offers an interest rate of 6.30% AER with 30 days' notice for withdrawals. My second choice would be Saffron Building Society's Mini Cash ISA which pays 6.25% AER but this time you'll need to give 60 days' notice if you want your money back. Both ISAs require a minimum deposit of £1,000.
All the accounts I've mentioned so far offer variable interest rates, although some do include valuable rate guarantees such as Icesave which promises to beat the base rate by at least 0.30% until 31 January 2011 and at least match it until 31 January 2013. If, however, you prefer a fixed return, I think the Halifax ISA Saver is a pretty good choice. If you can lock away your savings for say, four years, you'll earn a respectable 6.20% AER throughout the fixed rate period.
With Halifax's ISA you'll know exactly how much you're going to get back but in return for the generous fixed rate there are restrictions.
You must open the account with £3,000 so there's no opportunity for further top-ups and no withdrawals are permitted either. But if none of that is a problem for you, I reckon this is a decent ISA which you won't need to think about for the next few years at least. Alternatively, if you don't wish to be tied in for four years, you can choose a term of one, two or three years instead. But the interest rates will drop to 5.80%, 5.40% or 5.50% respectively.
If a fixed rate ISA appeals to you, then it's worth noting that Halifax also accept transfers of old cash ISAs you have opened in previous tax years.
Get Switching
This leads me nicely on to my final point. Millions of cash ISAs have been taken out since they were launched in 1999. Many of these simply won't be competitive so it's time to take a look at yours.
Now you know what qualifies as a decent rate, if your account doesn't measure up then you should transfer it to a new provider as soon as you can. With the exception of Barclays and Egg, all the cash ISAs I've talked about accept transfers. If you don't happen to have a best buy already, think about switching it now to make the most of your tax-free savings.
More: Who's Winning The Cash ISA Race? | Get a high interest cash ISA with The Fool.