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Updated: 27 Jan 2022

Best cash Isa rates for Isa season revealed

There's just one month to go until your Isa allowance resets for the new tax year

The cash Isa market could be showing signs of life as banks try to encourage savers to use up their remaining Isa allowance ahead of the new tax year.

As soon as 6 April rolls around your Isa allowance will be reset, ending your opportunity to maximise tax-free savings for the 2019-20 tax year.

With one month to go, several providers have begun upping rates (albeit undramatically) and launching new accounts. Nationwide has even launched a new Isa prize draw offering £500,000-worth of prizes.

Here, we reveal where to find the best cash Isa rates, and explain the Isa rules and allowances you'll need to stick to.

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What is the Nationwide Isa prize draw?

In a bid to encourage savers to use its Isa allowance, Nationwide's new Isa prize draw will give away £500,000-worth of prizes to its Isa savers, 10 of which will be worth £20,000.

It's open to new and existing savers in England, Scotland and Wales, and entry runs from 6 March to 30 April.

To qualify, existing customers' Isa balance must increase by at least £100 by the time the prize draw entry period ends. New customers will just need to open an account and pay in £100 during the entry period.

This follows the launch of Nationwide's new Start to Save account last month, which puts regular savers in a £100 prize draw.

However, it does of course mean that you're restricted to saving into Nationwide's Isas for now (as you can only open one cash Isa per year).

A new issue of the building society's Triple Access Online Isa launches on Friday, paying 1.21% AER for 12 months and allowing three withdrawals. Any more will cause the rate to be reduced to just 0.1% AER for the rest of the term.

This is just 0.14% behind the current top-rate instant-access Isa from Al Rayan Bank - and the Al Rayan account doesn't restrict the number of withdrawals you can make. Keep reading for more on this account.

What are the best cash Isa rates?

Rates across all types of cash Isa have reduced over the past year, with fixed-term Isas being hit the hardest.

According to Moneyfacts, the average long-term (18 months or more) fixed Isa rate has reduced from 1.62% in April 2019 to just 1.29% in March 2020.

However, average rates for instant-access Isas have held steady at 0.83% for the past couple of months, and one-year fixed-term Isa rates have increased from 1.12% in February to 1.14% in March, so there could still be hope for savers.

We've found the three top-rate accounts for each type of cash Isa.

Instant-access cash Isas

In theory, instant-access accounts allow you to withdraw your cash whenever you like. However, many come with restrictive caveats.

The top three rates at the time of writing are:

  • Al Rayan Bank Instant Access Cash Isa, 1.35% EPR (Expected Profit Rate), £50 minimum initial deposit
  • Virgin Money Double Take E-Isa, 1.31% AER, £1 minimum initial deposit
  • Leeds Building Society Double Access Isa, 1.3% AER, £5,000 minimum initial deposit.

The Virgin Money and Leeds Building Society accounts only permit two withdrawals per year.

Al Rayan Bank is an Islamic bank and pays an EPR rather than an annual equivalent rate (AER). This means the bank pays customers a percentage of its profits and, while the rate is not guaranteed, we've never heard of an instance in the UK where an Islamic bank has paid less than its advertised EPR.

Fixed-term cash Isas

If you commit to a fixed-term product, you'll need to make sure you can do without your cash for the duration of that term - whether it's one year or five.

The current best rates, based on a £5,000 savings pot, are:

  • Barclays Bank 3-Year Flexible Cash Isa, 1.7% AER, £1 minimum initial deposit
  • Principality Building Society 5-Year Fixed-Rate Cash Isa, 1.7% AER, £500 minimum initial deposit
  • Hodge Bank 5-Year Fixed-Rate Cash Isa, 1.65% AER, £1,000 minimum initial deposit.

Find out more: compare fixed-term cash Isas

Notice cash Isas

Notice accounts usually allow an unlimited number of withdrawals, but you'll have to wait a certain number of days to get your cash.

While notice periods can range from seven days to over a year, the most common terms are 30, 60 and 90 days. Here are the top rates for each of them:

  • Aldermore 30-Day Notice Cash Isa, 1.3% AER, £1,000 minimum initial deposit
  • Kent Reliance 60-Day Notice Cash Isa, 1.2% AER, £1,000 minimum initial deposit
  • Earl Shilton Building Society 90-Day Notice Cash Isa, 1.3% AER, £10 minimum initial deposit.

Find out more:compare notice cash Isas

Regular cash Isas

Regular Isa accounts require you to pay in a certain amount each month, and withdrawals may be limited.

The current top rates are:

  • Vernon Building Society Regular Saver Isa, 1.95% AER, £25-£500 monthly deposit required, two withdrawals permitted per year
  • Progressive Building Society Clockwork Regular Isa, 1.55% AER, £20-£1,666 monthly deposit required, only one withdrawal permitted per calendar year
  • Hanley Economic Building Society Cash Isa Regular Saver, 1.4% AER, £20 monthly deposit required, one withdrawal permitted per year or 30 days' loss of interest on the amount withdrawn.

You must live within a 25-mile radius of Stockport to open the Vernon Building Society account; Progressive Building Society customers must live in Northern Ireland.

Lifetime Isas

Lifetime Isas are for savers aged 18-39 at the time of opening the account who are either saving to buy their first home, or to fund their retirement.

In addition to AER interest, your savings are topped up by a 25% government bonus each month.

The three top rates are:

  • Moneybox cash lifetime Isa, 1.4% AER, £1 minimum initial deposit
  • Nottingham Building Society cash lifetime Isa, 1.25% AER, £10 minimum initial deposit
  • Paragon Building Society cash lifetime Isa, 1.15% AER, £1 minimum initial deposit

Find out more:lifetime Isas

Junior cash Isas

Junior Isas are for children under the age of 18; parents, grandparents and friends can pay into junior Isas.

The allowance for 2019-20 is £4,368; the threshold for 2020-21 is yet to be announced, but it usually rises with inflation each year.

The top three accounts are:

  • Coventry Building Society Junior cash Isa, 3.6% AER, £1 minimum initial deposit
  • Danske Bank Junior cash Isa, 3.45% AER, £25 minimum initial deposit
  • Darlington Building Society Junior cash Isa, 3.25% AER, £1 minimum initial deposit.

Find out more:best junior cash Isas

What are the cash Isa rules?

While cash Isas are very similar to ordinary savings accounts, there are some additional rules and restrictions you'll need to stick to.

Isa allowance

For the 2019-20 tax year, the total amount you can deposit into any kind of Isa in one tax year is £20,000.

You might choose to put it all into a cash Isa, or split it up between a stocks and shares Isa, lifetime Isa or innovative finance Isa.

You can only deposit up to £4,000 in a lifetime Isa.

Some Isas allow flexible withdrawals. This means that if, for example, you deposit £5,000 into a flexible cash Isa, and later withdraw £500, when you replace that £500 it won't be taken out of your allowance.

Under flexible Isa rules, you'll still have £15,000 of your Isa allowance left over, but a non-flexible Isa would record that you'd used £5,500 of your allowance.

Isa transfers

You can only pay into one of each type of Isa in each tax year - one cash Isa, one stocks and shares Isa, etc.

But it's possible to take advantage of better offers by transferring your Isa to another account.

You'll need to apply for a transfer from the provider you want to switch to, and they'll arrange it for you. Don't withdraw the money yourself, or your cash will lose its tax-free status.

The benefit of tax-free savings

With a normal savings account, any interest your money earns is counted towards your personal savings allowance.

If your interest exceeds this allowance, you'll have to pay tax on it via a self-assessment tax return.