New best-rate cash Isa tops the tables, but watch out for these caveats

Coventry Building Society has recently upped the rates on its instant-access cash Isa to pays 1.46% AER, putting it at the top of our best-rate tables.

It now pays more than all other instant-access Isas and most equivalent savings accounts.

However, there are some caveats to consider before signing up.

Find out how the account measures up to others on the market, and what terms and conditions you should check when choosing an instant-access account.

What does the new Isa offer?

The Coventry Building Society Limited Access Isa pays 1.46% AER, and can be opened with just £1.

Due to Isa restrictions, you can only deposit up to £20,000 in this tax year - but this account does accept transfers from other existing Isas. It's also a flexible Isa, which means you can make a withdrawal and re-deposit the money later without it counting any further towards your Isa allowance.

You can choose to have interest paid on the last day of every month, or once a year on 31 January.

Unlike many new accounts which are only available online, you can open and manage this account online, by telephone, by post or in a Coventry Building Society branch.

New Isa terms and conditions

This is not a straightforward instant-access account. Most importantly, you can only make up to three withdrawals from the account a year before paying a penalty.

From the fourth withdrawal onwards, you'll be charged the equivalent of 50 days' interest on the amount you're withdrawing. So, if you're likely to access the money more regularly, this may not be the best account for you.

The advertised rate includes a 0.31% bonus, the rate will drop to 1.15% after 31 January 2021. At this point, it may be worth shopping around for a more competitive rate.

• Find out more:how to find the best cash Isa

What are the best instant-access Isas and savings accounts?

The table below shows the top 10 instant-access rates across both cash Isas and savings accounts that don't require you to hold another account with the provider.

_{*Expected Profit Rate. Source: Moneyfacts. Correct 1 October 2019, but rates are subject to change.}

The account from Coventry Building Society isn't the only one with complicated terms. In fact, just two of the 10 leading accounts are free from such caveats, although both require a higher minimum initial deposit.

However, the one from Coventry Building Society is the only one to have two separate stipulations - both bonus rate and withdrawal restrictions. The other accounts only have one or the other.

That said, it allows more withdrawals than the accounts from Virgin Money and Yorkshire Building Society, and its rate once the bonus expires is better than the Cynergy Bank account, which drops to just 0.75% AER after 12 months.

• Find out more:how to find the best savings account

Isa tax-free benefit

The Coventry Building Society account is one of only two Isas in the top-10 table, as Isa rates tend to be lower than the savings account equivalent.

But as all savings held within an Isa are tax-free, this perk can prove more valuable than a bit of extra interest.

Due to the personal savings allowance, many people won't have to worry about pay tax on savings interest, as basic-rate taxpayers can earn up to £1,000 in each tax year.

However, higher-rate taxpayers can only earn £500, and additional-rate taxpayers don't get any personal savings allowance at all.

So, if you have enough saved that you are in danger of exceeding your allowance, or your income is too high, a cash Isa will cut your tax bill.

• Find out more:the personal savings allowance explained

Instant-access alternatives

As long as you follow the rules, notice accounts and high interest current accounts could be worth considering as an instant-access alternative.

Notice accounts

You can make an unlimited number of withdrawals from a notice account, provided you give the provider a certain amount of notice.

Notice periods range from a week to a year. The most common are 30 days, 60 days and 90 days; usually, the longer the notice period, the higher the rate you'll receive. The top rates for each of these are:

• Aldermore 30 Day Notice Cash Isa, 1.3% AER
• Kent Reliance 60 Day Notice, 1.5% AER
• Hampshire Trust Bank 90 Day Notice, 1.75% AER.

You may be able to get your money sooner, but you'll lose interest as a penalty.

High interest current accounts

Some high street banks offer current accounts that pay up to 5% credit interest, but you may have to pay in a certain amount each month.

The top accounts for credit balances of £1,000 include:

• Nationwide FlexDirect, 5% AER: interest is paid on the first £2,500 for the first 12 months, after which time interest falls to 1% AER. Must pay in at least £1,000 a month. Also include a fee-free overdraft for a year.
• TSB Classic Plus, 3% AER: interest is paid on the first £1,500 as long as you pay in at least £500 per month and register for internet banking/paperless statements.
• Bank of Scotland Classic with Vantage: 1% AER is paid on balance under £3,999.99, and 2% from £4,000-£5,000. You must pay in at least £1,000 a month, stay in credit and pay out at least two direct debits.

You could maximise your money even more by using several high interest current accounts at the same time.

• Find out more:best high interest bank accounts

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