Revealed: the best cash Isa rates for using up your 2018-19 allowance

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.

Which? reveals the best-rate cash Isa accounts, plus the Isa rules and allowances you need to watch out for.

What are the best cash Isa rates?

The table below shows the top-rate cash Isas for each fixed-term period, in order of the length of term, as well as instant-access (with a deposit of £5,000).

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 current inflation rate is 1.8%, 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.

_{Source: Which? Money Compare. Correct 1 March 2019.}

While rates are important, that's not the only consideration you should have.

We've outlined some other important things to weigh up before opting for a new cash Isa.

Can you afford the minimum initial deposit?

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.

Can you lock up your money for the entire term?

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.

Are there any bonus periods or withdrawal limits?

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.

Find out more:how to find the best cash Isa

What Isa rules do I need to know?

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.

Your Isa allowance

Any savings held in an Isa are entirely tax-free. Everyone can save up to £20,000 into Isa wrappers for each tax year - known as yourIsa allowance.

You could deposit the entire amount into a cash Isa, a stocks & shares Isa or an innovative finance Isa- all of which allow a maximum deposit of the full £20,000 - or, you could split your allowance between different types of Isa.

Some types of Isa have lower limits - for example, you can only deposit up to £4,000 a year into a lifetime Isa, and £2,400 into a Help to Buy Isa (£200 a month).

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 Isa allowance will start anew.

If you've already opened an Isa this year

While you can hold multiple Isa accounts of the same type, you're only allowed to pay into one of each kind in each tax year - so, one cash Isa, one stocks & shares Isaand so on.

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.

Find out more:cash Isa rules and allowances

Should I get an Isa?

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.

Tax-free savings

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.

So, Isas are particularly beneficial to those who have big savings pots or don't qualify for the personal savings allowance.

Find out more:personal savings allowance and tax on savings interest

Lower rates than savings accounts

Despite the tax-free benefits, the interest rates offered by cash Isa providers have been lagging behind savings accounts for some time now.

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, we recently found 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.

Find out more:best savings rates on the rise - 375 accounts now beat inflation

_{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.}

_{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.}