Savers can now earn up to 1.5% tax-free on their savings without locking their money away, with a new easy-access cash Isa from Coventry Building Society. This is the third cash Isa launched in recent weeks offering a table-topping rate, as providers vie to win over savers.
Indeed, the best of these Isas now pays as much as a rival savings account.
But some of the supposedly ‘instant-access’ Isas come with caveats as to how long the rate will last or how often you can make withdrawals.
Which? weighs up the latest offer from Coventry Building Society and looks at how it measures up to the market.
Chart-topping cash Isa launched
Instant-access cash Isa providers have been upping their rates in recent weeks in a bid to top the tables.
Just yesterday, Coventry Building Society launched a new account offering an interest rate of 1.5% AER, the highest currently available.
This is based on a 0.35% discount to an underlying rate of 1.15%, which is variable and could change at any time.
After the first 16 months, you won’t benefit from the discount and will just pay the underlying rate. So after the first 16 months are up, it will be worth checking whether the deal is still competitive.
For an account with a £1,000 deposit, which is not topped up, the balance after 16 months would be £1,020.13 and then £1,031.86 for the next 12 months after the interest rate is lowered.
You can opt for interest to be paid either annually or on the last day of each month. Appealingly, you can also make as many withdrawals as you like, penalty-free.
Find out more: How to find the best cash Isa?
Best easy-access cash Isa deals
Coventry Building Society isn’t alone in trying to woo savers.
Shortly before the Coventry announcement, Skipton launched a new easy-access cash Isa paying 1.48% AER.
However, like Coventry, this includes a 16-month bonus rate of 0.48%. After this, you’ll revert to the underlying rate, which is variable, and is currently 1%.
However, savers are limited to making only two withdrawals per year.
The table below shows how the best instant-access cash Isa deals compare. Keep in mind that these rates are variable, so the provider could choose to change them at any time.
Find out more: What is an Isa?
|Provider||AER||Revert rate||Minimum initial deposit||Number of withdrawals allowed|
|Coventry Building Society||1.50% (16 months)||1.15%||£1||Unlimited|
|Skipton Building Society||1.48% (16 months)||1%||£1||Unlimited|
|Virgin Money||1.47%||N/A||£1||Two per year|
|Yorkshire Building Society||1.46%||N/A||£100||One per year|
Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.
Remember you may be able to earn more by locking your money away for a specified time period, although in some cases you won’t be able to make withdrawals before the year is up without penalties.
You can compare hundreds more of the best Isa accounts on Which? Money Compare.
How do savings accounts compare?
The new products make cash Isas competitive with the best-rate instant-access savings accounts.
The current table-topping rate for savings accounts is from Marcus, which offers 1.5% AER for 12 months – before the rate drops to 1.35%. This is comparable to Coventry Building Society, although the discount period is shorter.
Unlike with a cash Isa, you won’t benefit from a tax-free wrapper if you opt for a savings account.
However, in the 2016-2017 tax year, a personal savings allowance was introduced. This allows basic-rate taxpayers to earn up to £1,000 in interest each year tax-free while higher-rate taxpayers can earn up to £500 a year tax-free.
For many people, this means the tax-free advantages of an Isa are no longer as appealing. The knock-on effect has been a significant drop in the number of people taking out cash Isas.
As cash Isa rates start to rival savings accounts, the tide may begin to turn.
How do Isas work?
All adults aged over 16 can put save up to £20,000 into an Isa wrapper. Any earnings on cash within these accounts will be exempt from tax.
Some types of Isa will have lower limits.
HMRC will reclaim extra money earned if you go over your Isa allowance.
- Find out more: Cash Isa rules and allowances
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