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8 Mar 2019

NS&I boosts interest on cash Isas - but are these the top rates?

National Savings & Investments (NS&I) has given savers a major boost this week after raising the interest rate on two of its cash Isa accounts.

Savers with a tax-free Junior Isa will benefit from a 0.75% rise in a bid to encourage more young people to start saving. The Direct Isa, meanwhile, will increase by 0.15%.

In both cases, however, these rates aren't necessarily the best in the market.

Which? looks at how the changes will benefit customers and what other deals are available.

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NS&I offers new interest rates

The NS&I has boosted the interest rate on its Junior Isa from 2.5% AER to an impressive 3.25% AER. Like all Junior Isas, deposits are tax-free and the money is held on behalf of a child, who won't be able to make any withdrawals before the age of 18.

The NS&I's Direct Isa, meanwhile, had its rate increased from 0.75% to 0.9%. You can withdraw the money at any time, though all deposits will count towards your overall Isa allowance.

These increases follow a 'recent pick up in the Isa market', according to NS&I.

Jill Waters, retail director at NS&I, said: 'These improved interest rates ensure that we are providing a fair rate, while guaranteeing that their money is 100% secure.

'Our Junior Isa offer gives parents and guardians a simple and straightforward way to invest for their children, at a competitive rate of interest.'

Read more: what is National Savings & Investments?

Are there better Junior ISA deals available?

The NS&I Junior Isa is now among the most competitive deals with its 3.25% AER but there are two options that can beat it.

Coventry Building Society and Danske Bank offer AERs of 3.6% and 3.45% respectively with their junior savings accounts.

Keep in mind that you can only deposit up to a certain amount into a junior Isa each year - the limit was set at £4,260 for 2018-19 but will rise to £4,368 for the next financial year.

Below are the best Junior Isa deals.

ProviderInterest (AER)AccessMinimum deposit
Coventry Building Society3.6%Branch, phone£1
Danske Bank3.45%Branch, online£25
Tesco Bank3.15%Online, phone£1

Source: Moneyfacts

Find out more:our guide to Junior Isas

How does the NS&I Direct ISA compare to competitors?

The NS&I Direct Isa is instant-access, and allows customers to take out money by phone or online with no notice.

There are a number of other instant-access Isas available which offer a better interest rate than 0.9%, but many of these have restrictions on withdrawing money.

For example, theVirgin Money Double Take Isaoffers a competitive rate of 1.45% AER, but customers are limited to two cash withdrawals a year.

But just this week, Coventry Building Society has launched a new easy access Isa offering 1.5% AER, with unlimited online withdrawals.

See below for a table below of the top instant-access deals.

ProviderInterest - AERMinimum initial depositWithdrawal limits
Virgin Money Double Take Isa1.45%£1Limited to two withdrawals per calendar year (full closure and transfer is permitted following the second withdrawal)
Tesco Instant Access Cash Isa1.44%£1Unlimited
Source: MoneyFacts, Which? Money compare

Why save with NS&I?

The NS&I is one of the largest saving organisations in the UK with 25 million customers, offering completely secure products backed by HM Treasury.

If you have a large nest egg, it may be worth considering the NS&I as a home for your savings. Deposits made to the NS&I are fully guaranteed by the government, no matter how large.

By contrast, most other savings accounts are protected by the Financial Services Compensation Scheme, which guarantees deposits of up to £85,000 per provider.

How do Isas work?

The government limits the amount you can pay into Isa because they are exempt from tax.

For the current and new financial year, you're able to save £20,000 into Isa accounts, but this can be split among different types of Isas.

Some Isa types have restrictions - for example, you can only deposit £4,260 of your full £20,000 allowance into a Junior Isa in the 2018-19 tax year.

In some cases, Isa providers will allow you to transfer balances from other accounts into your Isa without affecting your overall investment limit. But some don't, for example, the NS&I Direct Isa doesn't allow transfers. So you need to check the terms and conditions of the account carefully before opening it.

You can find out more in our guide to the cash Isa rules and allowances.

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.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.