With the new tax year now in full swing, Britons may be looking for a new cash ISA to help maximise their savings amid new harsher tax policies. Santander is currently topping the tables with a competitive interest rate on its 18-month fixed account – as well as a £50 e-voucher for those who make a switch.
Cash ISAs are a popular savings option as they come with additional benefits, such as enabling money to grow without having to pay tax on the interest above the Personal Savings Allowance (PSA).
These accounts also typically offer some of the highest interest rates on the market, but they can come with a few more restrictions, like penalty charges for early access or transfers.
Cash ISAs that offer a fixed rate of interest for a set length of time also help add a layer of certainty to savings. It means the bank or building society cannot change the interest rate during the term, which works well for account holders hoping to save long-term.
Santander’s 18-Month Fixed Rate ISA is offering an Annual Equivalent Rate (AER) of 4.25 percent.
Savers must deposit at least £500 to open the account and interest is calculated daily and paid annually or at maturity. The maximum balance at any time is £2million.
Partial withdrawals aren’t allowed. People can withdraw money from this account early by closing it, however, a penalty equivalent to 120 days’ interest will be applied.
New and existing customers who transfer an ISA of at least £10,000 from another provider into a Santander Fixed Rate ISA will benefit from £50 cashback as an e-voucher, which can be spent at over 100 outlets, including restaurants, supermarkets, clothes stores, and subscription services.
But while Santander is offering a competitive rate for 18-month ISAs, it isn’t quite topping the tables. Secure Trust Bank’s 18 Month Fixed Rate Cash ISA (27.Nov.24) is currently taking the lead with an AER of 4.55 percent.
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The account can be opened with a minimum deposit of £1,000 and interest is calculated daily and applied on December 31 and on maturity.
Interest can be paid into a nominated account or into the bond, however, withdrawals are not permitted during the course of the term.
Gatehouse Bank’s 18 Month Fixed Term Woodland Cash ISA falls just behind with an Expected Profit Rate of 4.25 percent.
Gatehouse Bank operates under Sharia principles, which means profit is earned instead of interest and with a Woodland Saver, a new tree planted in UK woodland per bank account opened or renewed.
The account can be opened with a minimum deposit of £1,000 and profit is paid on maturity. Early access will, however, be subject to 135 days’ loss.
Melton BS’s Fixed Rate Cash ISA is offering an AER of 3.8 percent.
Savers can open an account with a minimum of £1,000 and interest is calculated daily and applied annually on March 31.
Early withdrawals are not permitted during the fixed rate period and transfers out will be subject to a penalty of the loss of 120 days’ interest.
Commenting on the benefits of ISA products, Uma Rajah, CEO and co-founder of CapitalRise, said: “ISAs provide a personal tax-free allowance of up to £20,000 per tax year – this can be split between different ISA types or put all into one.
“You do not need to pay income tax, tax on dividends, or capital gains tax on funds in an ISA, potentially saving you a lot of money. If you can afford to do so, you should aim to max out your tax-free ISA allowance each year, because whatever is not used is lost.”
For those who are less likely to need to make a tax saving, general fixed rate accounts could be a better option as these are offering even higher rates at present.
The highest one, two, and three-year fixed rates savings accounts are offered by Al Rayan Bank with Expected Profit Rates of 4.57 percent, 4.62 percent, and 4.68 percent, respectively.
Lucinda O’Brien, savings expert at money.co.uk said: “In times of high inflation, ISAs aren’t always the best place for your savings. This is because the amount of interest you can earn, which is linked to the Bank of England’s Base Rate, doesn’t always beat the rate of inflation. This means you could be losing money by keeping your cash in an ISA.
“On top of that, UK residents also get a personal savings allowance from the Government, letting you earn up to £1,000 in interest a year before tax is applied, depending on your overall rate of income tax. This makes ISAs redundant to most people in terms of avoiding tax, as many won’t earn more than £1,000 per year interest.”
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