STwo of Britain’s biggest banks are offering the best new cash Isa rates for savers who can stash away the full £20,000 allowance.
NatWest and RBS, part of the same banking group, are offering the top deal to savers who put in their money between April 6 and May 5. The banks will pay a 1 pc bonus for a year, worth an extra £200 in interest.
The underlying rate with the easy-access NatWest Cash Isa is just 0.01 pc, but the bonus boosts it to 1.01 pc — not far below the rate you can earn if you tie up your money for a year. At RBS, the standard rate is 0.05 pc or 1.05 pc including the bonus. The accounts are available from 856 NatWest and 151 RBS branches as well as online or over the phone.
This table shows the best rates available for all types of Isa this coming tax year
It’s better news for savers because in past years many of the top Isa deals have been reserved for customers who apply online.
You will get the bonus rate on the first £20,000 in your account between May 18 this year and May 17 next (giving you a little more than a month to deposit the £20,000 to take full benefit).
If your balance dips below £20,000, you’ll still get the bonus on whatever is in there.
You can make up the minimum balance by depositing new money or transferring other cash Isas you may have into the accounts — or a combination of both.
You will only earn the account’s standard rate on any excess.
For example, with £25,000 in the NatWest Cash Isa, you’ll qualify for the bonus on £20,000, but only earn 0.01 pc on the extra £5,000.
Make sure you move your money once you get your bonus if the rates have not improved.
The only drawback to these accounts is that they do not offer the flexible option.
New Isa rules that came in last year give you the freedom to take money out of your account and then replace it in the same year without sacrificing any of your tax-free entitlement.
But it is up to the individual banks and building societies as to whether they offer this flexibility — and NatWest and RBS don’t.
If you put in £20,000 and then take out £1,000, you can’t put it back.
If you want flexibility to move money in and out of your account, head for Coventry BS, which pays 1.05 pc on its Easy Access Isa Issue 5. You can open it online, by phone, by post or in one of its branches.
RBS (pictured, stock) and NatWest are offering a one per cent bonus to customer, equivalent to £200 to those who put the full £20,000 in
Skipton BS Bonus Cash Isa will pay 1 pc including a 0.35 percentage point bonus for a year to new savers who open an account with them from tomorrow.
It’s available online, by post or in branches. But unlike the Coventry and NatWest accounts, you can’t transfer your existing cash Isas into this one — even if they are in another Skipton cash Isa.
These accounts pay far better rates than the average 0.43 pc on offer on easy-access accounts.
Some big providers pay even less. For example, at Halifax you will earn just 0.35 pc in its Isa Saver Variable. Even if you are willing to tie up your money for two years, the rate is just 0.6 pc.
But these new deals pay less than the top taxable easy-access accounts where you can earn a higher rate of 1.1 pc online with French-owned RCI Bank.
Taxable fixed-rate bonds also pay more than fixed-rate cash Isas.
New banks push up rates on taxable easy-access accounts and fixed-rate bonds. But they tend not to offer cash Isas, so competition among providers is more muted — and, therefore, rates are lower.
In the past, customers were led to believe cash Isas were the best place to store their cash.
But the arrival of the personal savings allowance last April has turned conventional wisdom on its head. It means every basic-rate taxpayer can earn up to £1,000 in interest on savings outside of Isas without paying any tax.
If the account pays 1 pc, you can have up to £100,000 in it earning tax-free interest.
For higher-rate taxpayers, it’s £500 of interest tax-free. Additional rate taxpayers don’t receive any personal savings allowance.
Banks and building societies reacted to the new allowance — which can be time-consuming to administer — by cutting rates on their cash Isas.
The top one-year fixed bond rate from Paragon Bank is 1.51 pc. But the top one-year fixed-rate cash Isa is a lower 1.1 pc.
This works out to £82 less interest from the fixed-rate Isa on £20,000.
Savings pot: Isa savers can put away £20,000 tax-free
And you won’t have to pay tax on your bond interest as long as you don’t bust your personal savings allowance.
Experts say that when rates finally rise, the cash Isa could come back into its own. And there is more likelihood of changes to the personal savings allowance than the cash Isa in the years ahead.
Anna Bowes, director at advice site Savings Champion, says: ‘Banks and building societies are turning cash Isas into second-class accounts.
‘But if you ignore your Isa allowance, you could end up paying more tax than you need to in the future when rates do rise.’ Patrick Connolly, from independent financial advisers Chase de Vere, says: ‘The tax-free status of cash Isas is less likely to come under attack in the future.
‘However, the personal savings allowance can alter at any time. We have already seen the equivalent dividend allowance cut to £2,000 next year.’
Justin Modray, an independent adviser at Candid Financial Advice, says: ‘If you have sufficient money in savings to feed into an Isa, it probably makes sense to use your cash Isa allowance.
‘You may not be saving anything in tax now, but it could be beneficial in the future.
‘But if you have only a small amount, ignore the Isa allowance and make use of the personal savings allowance. You can move the savings you build up into an Isa later on.’
The top one-year Isa rate is 1.1 pc from Yorkshire BS fixed until April 30 next year.
Leeds BS pays 1.01 pc and Newcastle and Skipton building societies pay 1 pc.
Coventry BS and Skipton BS pay 1.1 pc for 18 months and Principality BS pays 1.4 pc for two years.
It is worth checking what is on offer from Paragon Bank and Aldermore Bank later this week.
They tend to offer good rates, but have yet to show their hand for the next tax year.
The general level of interest rates is not expected to rise from its all-time low of 0.25 pc any time soon, so if you tie up your money in a top fixed-rate this could turn out to be a good decision — as long as you don’t need access to the money during the term.
Scott Corfe, a director at the Centre for Economics and Business Research, says: ‘We don’t expect the base rate to rise until February or May next year.
‘And then it will move at a gradual pace and is likely to reach 0.75 pc to 1 pc by the end of next year.’
Capital Economics does not expect interest rates to change until the end of next year because of the uncertain economic outlook.