Aldermore has launched a new cash ISA that offers a very attractive rate plus a fair amount of flexibility.
If you want to get the highest interest rate on your savings, you normally need to lock your money away for a five-year term. Trouble is, if you then need your money early, you usually have to pay a big penalty.
I think a one-year bond is often a nice compromise. You can still get a decent rate and you’ll only have to lock your money away for one year. If you think this might be the best approach for you, have a look at the Aldermore 1 Year Fixed Rate ISA.
It will give you an attractive 3.35% tax-free return, and you can access your money without penalty after a year. If you need your money early for some reason, you’ll have to pay a penalty equivalent to 120 days interest. The minimum deposit is £1,000.
Let’s compare the Aldermore account with the other top one-year ISAs:
Top one-year ISAs
|
Account |
Interest Rate |
Minimum deposit |
Notes |
|
3.35% |
£1,000 |
120 day interest penalty for early withdrawals |
|
|
3.35% |
£1,000 |
Only available to Cash ISA transfers from other providers |
|
|
3.25% |
£1 |
Can withdraw 25% of savings early without penalty |
|
|
3.25% |
£1 |
180 days interest penalty for early withdrawal |
|
|
3.25% |
£500 |
£100 charge for early withdrawal |
So you can see that no other one-year cash ISA pays more interest than Aldermore. What’s more, Aldermore's rate is only matched by NatWest’s ISA, and that’s available solely to customers who are transferring an ISA from another provider.
You could, of course, get even more flexibility if you put your money in an instant access cash ISA. But the rates are lower. Here’s a table of the top five instant access cash ISAs.
Top five instant access cash ISAs
|
Account |
Interest Rate |
Minimum deposit |
Bonus |
|
3.1% |
£1,000 |
2.1% bonus until 30 September 2013 |
|
|
3.06% |
£1,000 |
2.06% bonus until 30 September 2013 |
|
| 3.05% |
£1 |
0.95% bonus for 12 months |
|
| 3.05% |
£500 |
1.35% bonus for 12 months |
|
| 3% |
£1 |
1.96% bonus for 12 months |
There are two important things to note about this table. First, the Nationwide account is only on offer to customers with an existing Nationwide current account or savings account. Second, the rates on these ISAs could be cut at some point over the next year.
It’s true that all of the accounts have a guaranteed bonus - so, for example, the Cheshire BS ISA can’t fall below 2.06% until October 2013 – but with the Aldermore ISA, you know the rate is fixed at 3.35% for the next year.
Tax boost
And don’t forget that an ISA’s tax-free status makes Aldermore’s one-year ISA much more attractive than an equivalent conventional savings account.
Because you have to pay income tax on a conventional savings account, a basic rate taxpayer needs to get 4.18% from a normal account if he wants to match the 3.35% return from Aldermore’s ISA.
Right now, the top conventional one-year account – the FirstSave 1 Year Fixed Rate Bond – pays 3.6%, so the Aldermore ISA is clearly superior.
So if you’re looking to put some money away for a year, the Aldermore ISA looks a good bet. You’ll get a good rate while retaining a fair bit of flexibility.
More: Your child could earn 6% from an ISA | The UK's worst Cash ISAs