There's only a little more than a month left to use your £20,000 Isa allowance for this tax year - and in good news for savers, cash Isa rates are on the rise.
The amount of interest you could earn from cash Isas has been lacklustre in recent years. According to finance advice website Moneyfacts, the average rate for one-year fixed rate accounts fell to just 0.81% AER in February 2017. Two years later, though, the average rate for this term is up to 1.37% - and the top-rate accounts can even beat that.
Generally, the longer you lock your money away for, the better interest you'll earn. This is, somewhat inexplicably, not the case with the four-year fixed-rate Isa, which is languishing behind the top rates for both two- and three-year accounts.
Keep in mind that the , so if you're earning less interest than this, your money may be losing value in real terms. You'd need to lock your cash away for at least two years to beat today's inflation rate.
|Five-year fixed-rate cash Isa||Shawbrook Bank five-year fixed-rate cash Isa||2.13%||£5,000 minimum initial deposit|
|Four-year fixed-rate cash Isa||Hodge Bank four-year fixed-rate cash Isa||1.80%||£1,000 minimum initial deposit|
|Three-year fixed-rate cash Isa||Charter Savings Bank three-year fixed-rate cash Isa||2.05%||£1,000 minimum initial deposit|
|Two-year fixed-rate cash Isa||Charter Savings Bank two-year fixed-rate cash Isa||1.95%||£1,000 minimum initial deposit|
|One-year fixed-rate cash Isa||Charter Savings Bank one-year fixed-rate cash Isa||1.75%||£1,000 minimum initial deposit|
|Instant-access cash Isa||Virgin Money Double Take e-Isa||1.45%||£1 minimum initial deposit. Two withdrawals permitted per calendar year, unless full closure and transfer|
Source: Which? Money Compare. Correct 1 March 2019.
While rates are important, that's not the only consideration you should have.
Shawbrook Bank currently offers the highest rate in the table - but it's not helpful for those who don't have at least £5,000 to put away.
Alternatively, Metro Bank's five-year fixed rate cash Isa can be opened with just £1, but the interest is a more modest 1.9% AER.
Savers with smaller savings pots who don't want to commit to five years could benefit from Charter Savings Bank's two- or three-year accounts, but they still need at least £1,000 to deposit.
As previously mentioned, chasing the highest rates will usually mean committing to a longer-term account.
Fixed-rate account providers will either forbid any withdrawals before the end of the term, or they'll allow withdrawals, but you'll lose a hefty amount of interest.
Before opting for a fixed-rate term, you should make sure you can leave that money untouched for the full period and have other savings to draw on in an emergency.
If you want the option to your withdraw your cash, you may choose an instant-access account - but make sure you check the small print first.
Many instant-access accounts have tricky terms that could catch you out. The Virgin Money Double-take E-Isa is an example of this - while, yes, technically it does offer instant-access, you can only make two withdrawals per calendar year.
The only additional way to access your money would be to close the account and transfer your funds elsewhere.
Other accounts sometimes offer a competitive rates for the first 12 months from when you opened the account, before dropping to a much lower AER. You'll need to keep an eye on these, and transfer elsewhere once the rate drops.
The reason Isas are having their time in the sun now is because a new tax year is due to start on 5 April 2019. The banks are assuming most people probably haven't used up their full Isa allowance for the 2018-19 tax year yet, and they want your savings.
Seeing as you have this allowance at your disposal, it makes sense to use up as much of it as you can. The 2018-19 tax year ends on 5 April, and when the 2019-20 tax year starts on 6 April your will start anew.
But, you are allowed to transfer your savings to a new provider. So, if you'd opened a cash Isa in this tax year, but spotted a better rate with a different provider, you could request an Isa transfer. If you do this, you need to move all of your current year's Isa deposits to the new provider - you can't split it up.
If the Isa funds were deposited in previous tax years, you can choose to move them altogether or split between providers.
There's also a process you must follow. You'll have to open an account with the new provider and fill out a transfer form. Never withdraw the money yourself as it will instantly lose its tax-free status once it leaves the Isa 'wrapper'.
Transfers - from the current or previous tax years - won't add to your Isa allowance.
If you're still unsure whether you should use this final chance to use up your Isa allowance, there are a couple more things to consider.
Perhaps the biggest perk of an Isa is that all money held within it is tax-free - regardless of how much is saved or how much interest your cash earns.
Otherwise, interest earned from cash held in a savings account is taxable, although this may not be an issue if you qualify for the personal savings allowance and definitely won't exceed it.
For the current and next tax year, basic-rate taxpayers can earn up to £1,000, and higher-rate taxpayers can earn £500. Additional-rate taxpayers get nothing - but be aware that as your savings grow, so will your interest, and you could be caught out.
While the top-rate five-year fixed-term cash Isa pays 2.13% AER, the top-rate savings account for the same term offers 2.70% - which is a notable difference.
In fact, that 23 one-year fixed-rate savings accounts now offer a rate that equals or beats the 1.8% rate of CPI inflation. If you wanted to stick with an Isa, you'd have to opt for a two-year fixed-rate, and there are only six to choose from.
However, in terms of instant-access accounts, there's only a 0.06% difference between the top-rate cash Isa and the top-rate savings account, so it could be that Isas will catch up eventually.
Please note that the information above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.
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