Hurry! There's just over six weeks left to the end of the tax year and time is running out for using your ISA allowance.
With the end of the tax year looming, if you haven't already taken out an ISA, the clock is ticking. If you want to earn a tax-free return on your savings - and who doesn't! - you have until the 5 April deadline to invest up to £3,000 in a cash ISA. And you better get your skates on because this is a 'use it or lose it' allowance!
True, you'll be entitled to open a new ISA from 6 April, but you'll never get back this tax year's allowance if you don't act quickly. So, to help you make a speedy decision, here's a rundown of the top six accounts on offer right now. Even better, if you have an old cash ISA with a lousy interest rate, you could transfer it to one of these best buys and qualify for the same great return.
Top Six Cash ISAs
Company | Account | % AER | Notice | Minimum Deposit | Introductory Bonus |
|---|---|---|---|---|---|
Scarborough BS | Notice ISA | 6.30% | 30 Day | £1,000 | None |
Alliance & Leicester | Direct ISA Issue 4 | 6.25% | None | £1 | Rate includes 1.00% bonus until 31.05.2009 |
Easy Access ISA | 6.10% | None | £1,000 | None | |
Loughborough BS | 90 Day Mini Cash ISA | 6.10% | 90 Day | £1 | None |
Kent Reliance BS | Direct Mini Cash ISA | 6.05% | None | £1 | None |
Principality BS | e-ISA | 6.05% | None | £1 | None |
Source: Moneyfacts.
The top three are Scarborough Building Society paying 6.30%, followed by Alliance & Leicester with 6.25% while Icesave and Loughborough Building Society tie in third place at 6.10%. In fact, all top six ISAs offer rates above 6% which is pretty generous given that the Bank of England base rate has recently been cut to 5.25%.
Interestingly, the most competitive ISA offered towards the end of the last tax year paid just 5.80% even though the base rate stood at same level of 5.25%. So you can see, all else being equal, the top rate is now 0.50% better by comparison.
So, it would appear savers - including ISA savers - are doing well out of the credit crunch as those companies which need to attract further funds have been forced to step up interest rates. Even companies which are coming through the credit crunch relatively unscathed still need to offer equally attractive returns if they are to capture a competitive share of the cash ISA market this tax year.
But don't forget the rates shown are variable which means they could slip from the top spot at any time. So let's take a look at the cash ISAs which have paid the most interest in total over the last three years.
Most Consistent Cash ISAs Over Three Years
Company | Account | Notice | Minimum Deposit | Total Interest | Current % AER |
|---|---|---|---|---|---|
Yorkshire BS | e-ISA | None | £10 | £505.93 | 5.80% |
Earl Shilton BS | Mini Cash ISA | 90 Day | £10 | £497.44 | 5.80% |
Halifax | ISA Saver Direct | None | £1 | £493.39 | 5.50% |
Skipton BS | Mini Cash ISA | None | £50 | £491.06 | 5.70% |
Leek United BS | Mini Cash ISA | Instant | £1 | £490.44 | 5.75% |
Kent Reliance BS | Mini Cash ISA | None | £1 | £489.40 | 5.46% |
Source: Moneyfacts. Based on interest earned on £3,000 over three years to 7 January 2008.
Although these accounts are not the most competitive in terms of the current AER (annual equivalent rate) they have provided the most consistent returns over a 36-month period based on savings of £3,000.
Whether you go for top rates or consistency now is an excellent time to bag yourself a great, tax-free return. If you've got money to spare, I reckon a cash ISA should always be your first port of call. Think of it this way - taking Scarborough's best buy ISA as an example - a basic rate tax payer would need to open a taxable savings account with a gross interest rate of 7.88% to get an equivalent return outside the tax-free environment ISAs enjoy.
Meanwhile, a higher rate taxpayer would need a whopping rate of 10.5% before tax to be on a par with the return from Scarborough's ISA. A double digit return from a savings account is very hard to come by, so I think cash ISAs win every time. Well, at least for the first £3,000 of your savings.
Even better, you'll enjoy an increased allowance in the new tax year which means from 6 April you'll be able to save up to £3,600 and still give tax the slip.
More: Two Of The Best Seven Ways To Spend Money | How To Shelter From Sliding Shares | Visit The Motley Fool ISA Centre.