Good news for those who long to use cash Isas for a nest egg — rates are finally rising and the gap between ordinary accounts and cash Isas has narrowed so much there is not much between them.
This makes cash Isas a must for every saver as you can protect your interest from the taxman.
Last week competition heated up with Aldermore bank unveiling a one-year fixed-rate cash Isa at 5 per cent. And Shawbrook raised its rate to 5.01 per cent yesterday, quickly followed by OakNorth at 5.02 per cent.
Easy-access rates also look brighter with new providers coming in offering rates above 5 per cent.
The rates paid on these accounts no longer lag so far behind taxable accounts that they are not worth bothering with.
Tax shelter: Cash Isa rates are finally rising and the gap between them and ordinary accounts has narrowed so much that there is hardly a whisker between them
Now, there are more than four million accounts where savers are at risk of paying tax on interest, up by nearly a million over six months due to higher interest rates.
Now, basic-rate taxpayers are busting the personal savings allowance of £1,000 in interest on ordinary accounts without paying tax. For higher-rate payers, it’s £500.
With rates at 5 per cent, you’ll pay tax if you have over £20,000 in ordinary accounts as a basic-rate taxpayer, or £10,000 for higher-rate payers. Your 5 per cent is only worth 4 per cent if one of the first, 3 per cent if one of the latter.
The message is clear — use your £20,000 Isa allowance before April 5 so that your interest is tax free.
So where to start? First, don’t go to your current-account provider — its rates will be lousy.
Just look at them: Barclays 1.66 per cent, NatWest 1.75 per cent, Halifax 1.45 per cent, Santander 1.7 per cent, Lloyds 1.4 per cent on its easy-access cash Isas. HSBC pays 3.2 per cent but only with the right current account and if you add to your Isa each year.
The only exception is Virgin Money which pays 4.76 per cent and an unbeatable 5.25 per cent fixed rate if you tie your money up for a year.
The big banks do higher rates, but you’ll have to move your cash in a year.
Halifax pays 4.1 per cent on its Isa Bonus Saver if you make under four withdrawals. But after a year your money is moved into its Instant Isa Saver, paying 1.45 per cent.
Other banks and building societies pay far more. Among the best are Zopa (5.08 per cent), Marsden Building Society (5.05 per cent) and Charter Savings Bank (5.03 per cent).
On one-year fixed-rate accounts OakNorth’s 5.02 per cent is top with a minimum £1 — or you can take interest monthly at 4.91 per cent.
Rates on two-year fixed rates are lower as the general level of interest rates is set to fall. If rates do fall, you may win out by picking a longer-term product, such as at Zopa (4.67 per cent), Hodge Bank (4.62 per cent) and Furness BS (4.6 per cent).
Hot account is launched by Paragon Bank
Paragon Bank has launched a hot new version of its Double Access Account. It offers 5.16 per cent, making it the best payer for easy-access accounts that limit annual withdrawals.
It just pips Coventry BS Triple Access Saver (Online) Issue 3 at 5.08 per cent. Interest is variable and taxable.
I don’t include accounts which limit the number of times you take your money out in my easy-access best-buy tables. But I do keep you informed.
The Paragon Double Access allows two withdrawals a year. If you make more, the rate plummets to 1.5 per cent . And you need to keep £1,000 in there.
Older versions of the Paragon account, closed to new savers, pay different rates so switch to the new one if you are earning a lower rate. Issue 1 pays 4.75 per cent and Issue 3, 5.25 per cent.
If you have Coventry’s first or second issue stick with them for their 5.20 per cent and 5.15 pc rate, respectively.
