With hundreds of cash ISAs to choose from, where do you start? We unveil the Best Buys and Don't Buys for 2006/07!
If you're aged sixteen or over, you can stash money in a delightful tax-free savings account known as a cash ISA (Individual Savings Account). Of course, HM Revenue & Customs doesn't want to miss out on too much tax, so it puts a cap on your contributions to a cash ISA of £3,000 per tax year.
Note that the 2007/08 tax year starts on 6 April (which is also Good Friday), so you have only until 5 April to grab your annual ISA allowance for 2006/07. In addition, from 6 April 2008, the cash ISA limit increases to £3,600 per tax year, so you can earn tax-free interest on an extra £600 a year from that point onwards.
Mind you, the latest annual survey of cash ISAs from independent financial researcher Moneyfacts shows that you need to act quickly to grab the best deals. This survey compared the 169 cash ISAs that were available on 6 April 2006 to see how much interest each generated during this tax year. Assuming that the full £3,000 was invested on day one, no withdrawals were made, and all interest was left to roll-up in the account, here are the Best Buys:
Top Twenty Cash ISAs for 2006/07
Rank | Provider | Value (£) | Notice or term | Notes |
|---|---|---|---|---|
1 | Alliance & Leicester | 3,163.46 | None | |
2 | National Counties BS | 3,161.65 | Instant | |
3 | National Savings & Investments | 3,161.36 | None | |
4 | Saffron BS | 3,157.91 | 180 days | |
5 | Tipton & Coseley BS | 3,157.63 | 30 days | |
6 | Kent Reliance BS | 3,157.17 | None | |
7 | Bradford & Bingley | 3,157.14 | None | |
8 | Portman BS | 3,156.94 | 15 days | |
9= | Yorkshire BS | 3,155.48 | None | |
9= | Yorkshire BS | 3,155.48 | 30 days | |
11 | Saffron BS | 3,154.98 | 30 days | |
12 | Derbyshire BS | 3,154.97 | Instant | Over-55s only |
13 | National Counties BS | 3,153.94 | Instant | |
14 | Cambridge BS | 3,153.90 | 60 days | Only existing members/customers |
15 | Newbury BS | 3,153.65 | 60 days | Local savers only |
16 | Teachers BS | 3,153.64 | Instant | |
17 | Bradford & Bingley | 3,153.00 | 1 year | Fixed rate |
18 | City of Derry BS | 3,152.68 | 30 days | Local savers only |
19 | Leek United BS | 3,152.32 | Instant | |
20 | Dunfermline BS | 3,152.04 | 30 days |
As you can see, Alliance & Leicester takes top honours with interest of £163.46 over the year, which equates to a tax-free return of 5.45% on £3,000. Its no-notice Direct ISA account was launched on 9 January 2006 with an annual interest rate of 5.20%, plus an introductory 0.70% bonus. This bonus was withdrawn on 12 April 2006, so you needed to be quick off the mark to obtain one in this tax year.
It's worth noting three things: first, the table is dominated by building societies, which claim sixteen of the top twenty places. Thus, it clearly pays to save with mutuals (member-owned societies), rather than the big banks. Second, the top three accounts in this table are no-notice accounts, which proves that you don't have to tie up your money for long periods to earn the best returns. Third, last year's table was dominated by fixed-rate bonds, which accounted for nine of the top ten cash ISAs. This year, the highest fixed-rate account, from Bradford & Bingley, crept in 17th.
Overall, the average value across all 169 accounts was £3,141.36, which works out at 4.71% a year. However, there's a large gap between the best and worst accounts, as my second table shows:
Big Boys and Don't Buys for 2006/07
Rank | Provider | Value (£) | Notice or term | Notes |
|---|---|---|---|---|
31 | Nationwide BS | 3,150.06 | 60 days | Only existing members/customers |
33 | Halifax | 3,150.00 | 1-4 years | Fixed rate for 1, 2, 3 or 4 years |
39 | Halifax | 3,149.81 | None | |
40 | Bradford & Bingley | 3,149.68 | 3 years | |
51 | Marks & Spencer Money | 3,146.69 | None | |
52 | Abbey | 3,146.67 | Instant | |
53 | Intelligent Finance | 3,146.37 | None | |
54 | Abbey | 3,146.33 | None | |
56 | Northern Bank (NI) | 3,145.62 | None | |
62 | HSBC | 3,144.86 | Instant | Only existing customers |
69 | First Trust Bank (NI) | 3,143.98 | Instant | |
73 | NatWest | 3,143.52 | Instant | |
86= | Northern Rock | 3,142.10 | 15/04/07 | Fixed rate |
86= | Northern Rock | 3,142.10 | 15/04/10 | Fixed rate |
94 | Smile | 3,141.21 | None | Only existing members/customers |
95 | Nationwide BS | 3,141.06 | Instant | |
102 | First Direct | 3,140.31 | None | |
122 | Bradford & Bingley | 3,136.18 | Instant | |
124 | Lloyds TSB | 3,135.99 | None | |
132 | Northern Rock | 3,134.86 | 30 days | |
133 | Cheltenham & Gloucester | 3,134.72 | Instant | |
134 | Royal Bank of Scotland | 3,134.47 | Instant | |
135 | National Savings & Investments | 3,134.43 | None | |
142 | Alliance & Leicester | 3,133.58 | 30/04/07 | Fixed rate |
146 | HSBC | 3,130.08 | Instant | |
151= | Woolwich | 3,129.54 | Instant | |
151= | Barclays Bank | 3,129.54 | None | |
153 | Saffron BS | 3,128.81 | Instant | |
157 | Abbey | 3,124.70 | Instant | |
158 | Virgin Money | 3,123.86 | None | |
159 | Bank of Ireland (NI) | 3,123.29 | None | |
161 | Ulster Bank (NI) | 3,121.74 | Instant | Local savers only |
163 | Smile | 3,120.48 | None | |
165 | Co-operative Bank | 3,119.46 | None | |
167 | Northern Rock | 3,116.98 | Instant | |
168 | Halifax | 3,112.52 | Instant | |
169 | Alliance & Leicester | 3,109.51 | Instant |
It's clear that the UK's big banks and former building societies continue to let down their customers with poor showings in this table. Halifax's highest entry is at 33, Abbey comes in at 52, HSBC at 62, NatWest at 73, Northern Rock at 86, First Direct at 102, Lloyds TSB at 124, Royal Bank of Scotland at 124, and Barclays/Woolwich at 151.
Oddly, Alliance & Leicester bookends the table, taking first and 169th place. Northern Rock must be relieved to avoid the wooden spoon, which it won in the past three surveys!
The difference between the values of the first- and last-placed accounts is £53.95, or an extra 1.8% over the course of the year. This extra interest would be particularly rewarding to, say, a couple which has amassed two cash ISAs per year since these accounts were introduced in 1999/2000.
In summary, this survey clearly shows the worth of shopping around for a Best Buy cash ISA, and the value of acting quickly to take advantage of attractive short-lived deals. For the latest on great rates presently, read this article.
Happy tax-free saving, everyone!