Would you lock your money away for five years at 1.9%? The best cash Isa deals on offer now for new savings and transfers
Cash Isas are an integral part of savers’ armoury. After all, savers can squirrel away up to £20,000 safe in the knowledge that all interest paid will be tax-free. Perfect for growing a pot for a rainy day.
It’s no wonder 9.7million savers diligently paid into one in the tax year ending April 5, 2020, the latest for which figures are available.
But anyone hoping a cash Isa will protect their money from the ravages of inflation is set for a rude awakening.
Even the best cash Isa interest rates are three times lower than inflation, which is 5.5 per cent and rising fast.
Banks and building societies are exacerbating the interest drought, with many failing to pass on rate rises to parched savers.
Hence our Give Savers A Rate Rise campaign launched in December.
Banks and building societies are largely preferring to boost their own balance sheets and increase profits rather than support the customers who lend them money.
The Bank of England base rate has risen to 0.5 per cent and is set to rise further to combat inflation. Yet the average cash Isa pays a pitiful 0.3 per cent in interest, according to rates scrutineer Moneyfacts.
Some providers have begun to raise rates on mainstream accounts, but cash Isa rates lag far behind.
On a 12-month fixed-rate bond, OakNorth pays 1.46 per cent. Yet in a tax-free Isa it pays 1.16 per cent.
Those able to put cash aside for longer might consider a two-year Aldermore account paying 1.75 per cent on £1,000 or more. Its two-year cash Isa pays 1.5 per cent.
For even longer-term savings United Trust Bank pays 2.2 per cent a year for those tying up £5,000 for five years. But it only pays 1.86 per cent on a five-year Isa account – on sums of at least £15,000.
Don’t bank on it: Anyone hoping a cash Isa will protect their money from the ravages of inflation is set for a rude awakening
Experts say providers offer the best rates on savings accounts rather than cash Isas as it serves their own business purposes.
Holly MacKay, founder of consumer website Boring Money, says: ‘Banks and building societies tend to focus on luring new customers into current and savings accounts as it offers a greater opportunity to cross-sell other products.
Cash Isas are often seen as a bank vault for sensible savers – far less appealing as a marketing tool.’
So should you ditch your cash Isa? Most savers are unlikely to pay tax on savings interest as the personal savings allowance lets basic rate taxpayers earn up to £1,000 in savings income a year tax-free.
But there are reasons to hold on to a cash Isa. Interest rates are rising and the Government could cut the personal savings allowance, which has only been around since 2016.
With Isas the risk is much lower – it would be a political disaster to remove the bedrock of family savings for more than 20 years.
Moving a cash Isa to one paying a better rate is easy. You just need to fill in a transfer form with the new provider, who will do the rest.
Not all cash Isas accept transfers. Among the best instant Isa transfer deals is Yorkshire building society, 0.77 per cent on £10,000, or 0.6 per cent below. Next is Shawbrook Bank (0.66 per cent) and Leeds building society (0.65 per cent).
Essential reading: This is Money’s regularly updated Five of the best cash Isas
How to find the best savings rates
Savings rates have been in the doldrums for many years but the situation was hugely exacerbated by the pandemic and the emergency base rate cut to 0.1 per cent.
But there are ways to ensure your cash is at least in the best of the bunch at all times.
Checking top rates is essential, but it is also possible to make life easier overall and manage your savings pots in one place.
Over the past few years a number of savings platforms have launched, offering savers the option to switch as and when better deals become available and manage accounts from different banks and building societies.
They each work slightly differently and include their own exclusives. To check out what’s on offer take a look yourself:
> Hargreaves Lansdown Active Savings
Or you can view This is Money’s comprehensive best buy savings tables here, independently curated by savings guru Sylvia Morris:
> Compare best savings rates now