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The new 2021-22 tax year began on 6 April, meaning all UK citizens have a brand new £20,000 tax-free Isa allowance to use by 5 April 2022.
However, with strict rules and average Isa rates continuing to reach new lows (as they have done for the past few months), it can be hard to know where to start - but it's always important to make sure your savings are receiving as competitive a rate as possible.
Here, Which? reveals the cash Isas offering the top rates, how to transfer your existing Isa savings and how much you're allowed to save.
The table below shows the top rates for fixed-term and instant-access cash Isas, by order of term.
Account type | Account | AER | Terms |
Five-year fixed-term cash Isa | Shawbrook Bank Five-Year Fixed-Term Cash Isa | 1.1% | £1,000 minimum initial deposit. |
Four-year fixed-term cash Isa | Punjab National Bank Four-Year Fixed-Term Cash Isa | 0.8% | £1,000 minimum initial deposit. |
Three-year fixed-term cash Isa | Punjab National Bank Three-Year Fixed-Term Cash Isa | 0.7% | £1,000 minimum initial deposit. |
Two-year fixed-term cash Isa | Punjab National Bank Two-Year Fixed-Term Cash Isa | 0.65% | £1,000 minimum initial deposit. |
One-year fixed-term cash Isa | Punjab National Bank One-Year Fixed-Term Cash Isa | 0.5% | £1,000 minimum initial deposit. |
Instant-access cash Isa | Punjab National Bank Variable Rate Cash Isa | 0.5% | £1 minimum initial deposit. |
Source: Moneyfacts. Correct as of 7 April 2021, but rates are subject to change.
As the table shows, most of the top rates are offered by the same provider at the moment - Punjab National Bank.
There's currently no difference between the top-rate instant-access account and the top one-year fixed-term account, which is very unusual. While it does make the idea of fixing for a year look a little pointless, note that instant-access account rates can change at any time, so you could find yourself earning much less interest in the future, whereas at least it's guaranteed with a fixed-term account.
As CPI inflation fell to 0.4% in February 2021, currently all of these accounts do exceed this rate - but only just. If your savings fail to grow at the same rate as inflation your cash will lose value in real terms.
Finally, note that all of the top-rate accounts here, bar the instant-access account, require a minimum initial deposit of at least £1,000, so you'll need to make sure you can both afford that sum when you first open the account and can do without it for the full term.
The overall Isa allowance for 2021-22 is £20,000, which is the same as it was last year.
This is the overall allowance you can deposit into any kind of Isa, whether that's all into a cash Isa, or split among a cash Isa, stocks and shares Isa, innovative finance Isa and a lifetime Isa - note that you can only deposit up to £4,000 into a lifetime Isa in each tax year.
You can only save into one of each type of Isa in each tax year; if you pay into an existing Help to Buy Isa (now closed to new customers) in 2021-22, you won't be able to pay into any other cash Isas in this tax year, as it counts as your cash Isa option. These accounts only accept deposits of up to £200 per month.
However, you can pay into a cash lifetime Isa and a cash Isa within the same tax year, as a lifetime Isa is counted as a different type of Isa.
While the end of the tax year is often referred to as 'Isa season' - a time when many savers hurry to deposit what's left of their remaining Isa allowance before it renews each 6 April - it's not the best time to make your deposits.
In fact, the best time to maximise your Isa savings is now, at the start of the tax year. There are several reasons for this:
If you've been incredibly quick off the mark and already paid into a cash Isa in this tax year, but have spotted a better rate elsewhere, all is not lost.
You may be able to take advantage of the better rate by transferring your Isa savings to the new account.
If you've committed to a fixed-term cash Isa, this may not be allowed, or you may have to pay an interest penalty.
To make a transfer, you'll need to fill out an Isa request form with the new provider, which will then contact your existing Isa provider and organise the transfer - don't be tempted to withdraw the money and deposit it yourself; not only will this break the Isa rule of only paying into one account in each tax year, but your cash will also lose its tax-free status if it's removed from the Isa 'wrapper'.
If you're transferring between cash Isas, the process should take no longer than 15 working days. It's also possible to transfer between different types of Isas using the same process, but the timeframes can differ - and, if you transfer out from a lifetime Isa into another type of Isa you'll face the lifetime Isa withdrawal penalty.
Be mindful that not all Isas accept transfers, so make sure you check the account's terms beforehand.
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? Money Compare is a trading name of Which? Financial Services Limited.