Isa season is for many people a race to use up this year’s tax-free allowance before it disappears on 5 April. Others will be waiting for 6 April to lock away another chunk of their wealth from the taxman as early as possible in the new tax year. And for all of us it should be a reminder to check up on older Isas and see whether they are still competitive.
Whichever group you’re in, the key is to hunt down the best home for your money. Where that is will depend on what you want to do with the cash. If this is money you may need for an emergency, then put it into an instant-access cash Isa. But bear in mind that, having withdrawn it, you lose any future tax benefits on the amount taken out.
If this is money you won’t need for a long time, then look at notice cash Isas and fixed-rate cash Isas. Notice cash Isas demand that you give prior warning, normally 30 or 60 days, before withdrawing your cash. They tend to offer better interest rates, but that advantage will be wiped out by a penalty if you withdraw the cash without notice.
Rates are currently changing fast, and not in a good way, due to the Bank of England’s cheap Funding for Lending Scheme for banks. One of the best notice cash Isas around at the moment is Coventry Building Society’s 60-Day Notice Isa. It pays an attractive variable rate of 2.80%, but you’ll need to give 60 days’ notice to withdraw your cash.
If you won’t need the money for a while under any circumstances, then you could consider fixed-rate Isas. They ask that you promise not to withdraw your cash for a fixed period – anything between one and five years. Again, the more time you can commit to, the better the rates. However, with these types of accounts you’re betting on future interest rates.
If rates move up from their current historic lows, a deal that seems attractive now could come back to haunt you. Metro Bank’s one-year fixed-rate cash Isa is among the best in the market just now, offering 2.25%. Rates for longer-term fixed rates are gradually improving, with the best offer available being the Halifax’s Isa Saver Fixed account, which offers 2.70% to savers who are prepared to lock up their money for five years.
From 6 April, savers will be able to put £5,760 into a cash Isa and shopping for the best rate makes sense. But, “given the size of many people’s existing Isa holding, there are far more significant gains to be made by maximising interest on these savings, rather than getting the best rate on this year’s Isa allocation”, says Susan Hannums of SavingChampion.co.uk in The Daily Telegraph.
Typically, banks introduce new Isas with attractive bonus rates to tempt new customers. Then, after 12 months, the bonus rate is removed and your savings are left earning next to nothing. The only way to avoid this is to check your old accounts and switch. Not all Isas allow you to ‘transfer in’, but it is becoming more common.
Moreover, banks are set to agree a new Isa transfer system, which should reduce the time (up to three weeks) it can currently take to move from one Isa to another.
With Isa transfers, there are a few things to bear in mind. One is that you can transfer a cash Isa into a shares Isa, but not the other way around. Also, while the current year’s cash Isa must be moved between providers whole, allowances from past years can be split between different providers.
And if you’re pooling a lot of previous Isas into one account, be careful that your savings with one particular bank or building society don’t exceed the £85,000 protected by the Financial Services Compensation Scheme.
Most importantly, remember that if you withdraw money from your Isa account, you lose the ability to top up that account at a later date. So if you plan to transfer, always arrange it via your bank – don’t think you can take the money out and shift it yourself. The table below summarises some of the better deals out there so far. But keep an eye on rates as April approaches.
Cash Isas at a glance – five of the best
|Nationwide Web Isa Issue 2||2.25%||This online-only account pays a fixed 1.75% bonus until 31/8/14 on balances of £10,000. Requires a Nationwide account. Allows transfers in.|
|Metro Bank One Year Fixed Rate Isa||2.25%||This branch and postal account has a minimum deposit of £1 and allows transfers in.|
|Coventry Building Society 60 Day Notice Isa||2.80%||This variable rate includes a 0.6% one-year bonus on a minimum deposit of £1. You can’t transfer in and will have to give 60 days’ notice to make a withdrawal.|
|Halifax Isa Saver Fixed||2.65%/ 2.70%||For longer-term savers this account comes in a four-year (2.65%) or five-year (2.7%) variant. It allows transfers in and has a minimum deposit of £500.|
|Harpenden Building Society Simply Isa||2.25%||This account offers instant access, allows transfers in, has a minimum deposit of just £1, and there is no sneaky introductory bonus that will be removed later on.|