With banks slashing their ISA rates left right and centre it makes a change for a new top payer to be launched - and this one has made a promise that certain customers will earn a better rate of interest, or they'll get £1,000.
Falling interest rates may be great news for borrowers, but for those of us with savings accounts our rates are being slashed left, right and centre. Indeed, rather than earning interest rates nudging 7% on our instant access accounts, they're now more likely to be around the 5% mark.
Cash ISAs
Of course, sensible Fools will have been religiously using their cash ISA allowances for any savings. These accounts let us save up to £3,000 each tax year and keep all the interest earned, even if we normally pay tax. Plus cash ISAs don't have to be declared on those pesky tax returns.
And don't underestimate the benefits of not having to pay tax on your savings. Stashing £9,000 in an ISA paying 5.5%AER, for example, means a higher rate taxpayer will earn £495 in interest over a year. If he were to squirrel the same amount into a conventional savings account paying the same rate he'd only actually be earning 3.3%, meaning he'd keep just £297 after having to give nearly £200 in tax to the government!
Transfers
But although cash ISAs are great, one problem we've seen lately is that providers are getting meaner with them - and that is largely down to the way the accounts work. We all know that we should keep an eye on our savings rates and be ready to move our money to a better paying account, should our rate start to fall. But the problem with ISAs is that to do this without losing the "ISA" status, we need to transfer our money to the new provider (not simply close the account and take the cash). And most of the providers offering the table topping cash ISA rates won't allow transfers.
But that is until today, as Icelandic savings provider Icesave has just launched its Easy Access ISA. Paying a whopping 6.1%AER on balances of £1,000+ it's at the top of the Moneyfacts table for instant access cash ISAs. Its rate is guaranteed to be at least 0.3%AER above the Bank of England base rate until 31 January 2011 and to at least equal the base rate until 31 January 2013. Interest can be paid monthly or annually. And the best bit is you can transfer your existing ISAs to it with no penalty.
What's more, Icesave has issued a promise. If your current ISA is with one of the big banks, namely NatWest, HSBC, Barclays, Lloyds TSB, Halifax or Nationwide BS, Icesave promises that you will earn a higher rate of interest - if not it will give you a whopping £1,000* for your trouble!
Of course, you will still be able to earn a better rate of interest if you are willing to put up with notice periods. Scarborough BS, for instance, is currently paying 6.3%AER on balances of £1,000+, will also allow transfers in, but you'll need to give 30 days' notice to get at your cash.
But in my opinion, as someone who loathes interest periods and short term bonuses, Icesave has come up with another great product that I'm sure many of us will be snapping up.
And as a final note, it's worth remembering that we only have two months left to use up our 2007/8 ISA allowances - so if you haven't done so already it's well worth considering. Even non-taxpayers should think about using ISA allowances as although you may not be paying tax at the moment, who knows what the future may bring.
2008/9 ISA changes
What's more, we're about to see some changes when it comes to ISAs next year. For the first time since their launch, the maximum that can be saved into a cash ISA is going to rise in 2008/9 from £3,000 to £3,600, with the overall total ISA saving limit rising from £7,000 to £7,200.
Interestingly, we'll also be able to transfer our existing cash ISAs to equity ISAs without penalty (but not the other way round, or you'll lose the tax free benefits). And if you have a PEP or TESSA (the forerunners to equity and cash ISAs) they are to be simply merged into ISAs.
Clearly the new rules are aimed at helping to simplify the current, unnecessarily complicated system - and the government also pledged last year that it is to remain committed to ISAs, seeing them as a "vital part of our approach to saving". Indeed, the idea seems to be that we should effectively begin life by saving into a tax-free Child trust Fund, be able to roll this into a tax-free ISA at 18 and then into our pensions further down the line.
But whatever your situation, ISAs provide one of the very few ways we can save, tax-free so we should all consider using up our allowance each year.
* The offer applies to customers whose variable rate, cash ISAs have been open for at least a year and excludes AERs inflated by a bonus, dependent on another product holding or a staff concession. To qualify, the customer's completed transfer form must be received by 1 March 2008.
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