There are only a couple of weeks left to use your 2017-18 Isa allowance – and the good news is that cash Isa interest rates are on the rise.
According to research by independent financial information business Defaqto, the average cash Isa rate has risen to 0.7% – that’s up from 0.53% in 2017, and represents an increase of almost a third.
The research also showed that the number of cash Isas on the market has increased by 21% since 2017, from 370 products to 446.
For the 2017-18 tax year – and for the upcoming 2018-19 tax year – you have a tax-free Isa allowance of £20,000. You can choose to pay all of this into a cash Isa, or split it between different types of Isas (see our guide to how the Isa allowance actually works for more information).
To help with all that choice, we’ve singled out the cash Isas currently offering the best rates.
- Discover the best Isa rates on the market with Which? Money Compare.
The best instant-access Isa
Nationwide’s Single Access Isa offers an interest rate of 1.3% AER for balances over £1, paid annually on the anniversary of when the account was opened. You can open and operate the account online, in branch or using the bank’s mobile app.
While withdrawals are allowed, you are only permitted to make one withdrawal per anniversary year.
You can split your Isa allowance between different Isas also held with Nationwide, as well as transferring in money from an alternative cash or stocks and shares Isa.
For those who have had an account with Nationwide for a year or more, there’s the very similar Loyalty Single Access Isa, which has all of the same terms as the Single Access Isa but with a slightly higher interest rate of 1.4% AER.
The best notice Isa
Charter Savings Bank has a 95-day notice cash Isa issue 2 account that pays 1.31% AER on a minimum opening amount of £1,000.
You can transfer money in from other cash or stocks and shares Isas, and split your Isa allowance between other Charter Isas.
Interest is paid annually on the account’s anniversary, and while earlier access is allowed, it’s subject to losing 95 days’ worth of interest. The account can only be opened and managed online.
- Find out more: cash Isa rules and allowances – we explain how to use your annual Isa allowance.
The best one-year fixed-rate Isa
Virgin Money fixed-rate cash E-Isa Issue 317 is an internet-only account that offers 1.5% AER. You can open it with just £1, and interest is paid after one year.
It’s possible to access your money before the year is up, but you will lose out on 60 days of interest. Transfers from another cash Isa or stocks and shares Isa are allowed.
You’ll receive a letter to let you know when the account is due to mature and, unless you specify otherwise, the money will then be paid into a variable-rate account.
The best two-year fixed-rate Isa
Al Rayan Bank’s 24-month fixed-term cash Isa requires a minimum deposit of £1,000 to open the account, with 1.7% AER paid quarterly. This can be paid into a separate bank account or compounded.
The account can be opened and operated via post, telephone, in branch, online or using the bank’s mobile app. You can transfer in money from another cash Isa or stocks and shares Isa.
No withdrawals or early access is allowed during the 24-month term.
The best longer-term fixed-rate Isa
The internet-only five-year fixed-rate cash Isa from Charter Savings Bank offers 2.25% AER on savings over £1,000 – the minimum required to open an account.
Interest can be paid away or compounded, and will be received on the anniversary of the account being opened.
Early access is allowed, but with a penalty of losing 270 days’ interest.
You can transfer in funds from another cash Isa or stocks and shares Isa, and you can split your Isa allowance between different Isas with the same provider.
Is an Isa the best place to save?
Despite the rise in Isa rates, even those offering the best deals still fall short of the current rate of inflation, which stands at 3%.
If savings aren’t growing at the same rate of inflation, your money will be losing value in real terms.
Some current accounts offer much higher rates, although these are often restricted to smaller sums of money. Any interest you earn on money that’s not saved in an Isa counts towards your personal savings allowance (basic-rate taxpayers can earn up to £1,000 in interest before paying tax).
Nationwide’s FlexDirect current account is top of the table, offering 5% AER on balances up to £2,500 for the first 12 months, as long as £1,000 is paid in each month.
The TSB Classic Plus Account gives 3% AER on balances of up to £1,500 when you pay in £500 a month and register for internet banking/paperless statements.
The account also offers a ‘refer a friend’ switching bonus, plus the chance to accrue up to £10 cashback a month.
- Find out more: best bank accounts if you always stay in credit
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