If you want to hunt down a top tax-free return on your savings, look no further....
It's pretty clear that the banks are after your money in a big way. As the financial markets lurch from one disaster to the next, the cost of interbank lending has gone through the roof again. This means banks can't afford to borrow from each other, but that's great news for savers.
Great rates are on the way
Throughout the credit crunch rates on savings accounts have crept up as banks try their best to attract new deposits. And it looks like hot competition is on the cards, which could mean even better rates are on the way.
I've been expecting a raft of new best buy savings accounts following the latest market turmoil, and so far I haven't been disappointed.
Take NatWest's latest venture into the cash ISA market, for example. The bank is now targeting savers who already have ISAs with other providers. Mouth-watering rates are on offer if savers agree to transfer old ISAs into the new NatWest Cash ISA. This could be just the ticket if your existing ISAs are paying paltry returns.
Fantastic tax-free rates of 6.67% to 7.32% will put the NatWest Cash ISA firmly at the top of the best buy tables too. In fact these rates are 0.42% to 1.07% better than the nearest rivals and -- better still -- they apply to the overall balance, whether it is money transferred from an old ISA or a totally new deposit.
Don't forget that money transferred from one ISA to another doesn't affect your £3,600 cash ISA limit for this tax year.
The actual rate you will earn depends on the total balance held in your ISA. Here's how it breaks down:
NatWest Cash ISA rates
ISA balance (including transfers and new money) | % AER (including a 2% bonus for 12 months) |
|---|---|
£27,000+ | 7.32% |
£18,000 - £26,999 | 7.16% |
£9,000 - £17,999 | 6.87% |
£1 - £8,999 | 6.67% |
The rates include a 2% bonus for 12 months. Once this big bonus has disappeared, you will need to check the new rate measures up well against other cash ISAs. If it lags behind the competition, think about transferring your ISA savings again.
But for now at least, I think NatWest is offering a very attractive ISA account which fills a gap in the market by paying a great return on ISA transfers and new money. It's pretty unusual for cash ISAs to pay top rates on both. Of the three previous best buys only one -- the Post Office -- offers a decent rate of 6.25% on old and new ISA deposits. And while HSBC Cash e-ISA and Barclays Tax Haven ISA also pay 6.25% on new money, neither will accept ISA transfers.
What's more, the new NatWest Cash ISA offers all the features you would expect from a good tax-free savings account -- that is, easy access with no withdrawal penalties and a minimum balance of just £1. Existing NatWest customers can also transfer in ISAs they have elsewhere too.
E-Savings
NatWest hasn't stopped at market-leading cash ISAs either. The bank is also keen to gets it hands on your taxable savings with the launch of a new E-Savings account. The rate on offer is pretty competitive at 6.50%, which includes a bonus of 2.09% for 12 months.
Penalty-free access is also available whenever you need it. Here's how it compares with other similar instant access savings accounts:
Savings account | % AER | Minimum deposit | Bonus included in rate |
Kaupthing Edge Savings | 6.55% | £100 | No |
Birmingham Midshires e-Saver Account (Issue 2) | 6.52% | £1 | No |
6.51% | £500 | 0.61% for 12 months | |
6.51% | £1 | No | |
NatWest E-Savings | 6.50% | £1 | 2.09% for 12 months |
6.50% | £1 | 1.66% for 12 months |
Accounts with withdrawal restrictions have been excluded
As you can see, NatWest E-Savings comes up to scratch with a rate that's just 0.05% behind the best buy, Kaupthing Edge Savings. But the same advice applies to the 2.09% bonus. Once this rather large bonus has gone, do make sure you're not left with an account that's decidedly below par.
There are a clutch of accounts which offer the same 6.50% rate, but of these, I think the ING Direct Savings Account has the edge with a slightly smaller bonus. This means when the bonus comes to an end in 12 months -- all things being equal -- the new rate should be higher than NatWest account offers at that time.
Not only has NatWest brought out a new cash ISA and savings account, but it has also added a two-year fixed rate bond to its range. Fixed rate bonds are popular with savers at the moment because many offer inflation-busting rates.
However, the bank's new bond doesn't quite keep up with a rate of 6.60% on a minimum deposit of £10,000. The market-leader today is the 12 month ICICI Bank HiSave Fixed Rate bond which pays a rather more impressive rate of 7.20% on savings of just £1,000.
That said NatWest has certainly introduced a range of new savings accounts which are sure to be popular with savers. Now let's wait and see what the competition does next!
More: Transfer Your Way To A Better Tax-Free Return | Beat Inflation With These Beautiful Bonds| Compare cash ISAs and savings accounts at The Fool.