Help to Buy Isas: which account should I get?
The main reason for getting one is the £3,000 contribution to your savings from the Treasury, but finding an account paying a decent interest rate will also help you reach your deposit goal faster.
Thankfully, the rates on Hisas compare very favourably with other Cash Isas. You'll struggle to 1.5% on an instant access Isa, but plenty of Hisas pay 2% or more.
It’s arguably fairer to compare them with regular savings accounts, as you’ll be growing your deposit over time. Even on this basis, Hisa rates are far better. Some borrowers can still get Hisas that pay 4% AER, dwarfing rates on even the best regular saver Isas. And that's before you've considered the government bonus.
But there’s huge variation between the rates on offer, so shopping around for the best rate is even more important than normal. If you save the full allowance, by the time you’ve saved the £12,000 to earn the maximum £3,000 bonus, you’ll earn £1,525 interest with the market leader – but if you opt for an account in the middle of the pack you’ll get just half that.
All the products announced so far give you instant access if you need it, but you’ll forfeit / postpone the 25% top up.
They’ll all let you transfer-in too, so if you’ve started a Cash Isa this year you can switch the balance over to any account listed here.
If you’ve saved more than the £1,200 limit this year, consider an account that lets you hold a second Cash Isa like Nationwide or Natwest. Or alternatively, you could close the first account and reopen another. If you do that, anything you’ve already put into an Isa will come out of your allowance for the year.
So who’s paying what?
Penrith Building Society – 3% AER
Is one of a few building societies offering superior rates, but only if you live in their catchment area.
Cumberland Building Society – 3% AER
As with Penrith, the Cumberland beats the big banks, but only if you live locally.
Tipton & Coseley Building Society – 3% AER
This one's only available to people in parts of the West Midlands – and again, it’s better than you’ll find anywhere else if you qualify.
Darlington Building Society – 2.55% AER
Again, a better rate than the high street banks are willing to offer, but only if you’re a local customer.
Barclays – 2.27% AER
Not only does Barclays have the strongest nationally available rate, but savers can also opt for monthly interest, which could be better if you’re planning to hold a Help to Buy Isa for less than a year.
Virgin Money – 2% AER
Back-to-back rate cuts from Virgin mean this one doesn’t stand out any more, but it’s still far more generous than an instant access Isa. It has launched an additional ‘save to buy’ account if you can save more than £200 a month, but that’s not tax-free, and better rates are out there.
Halifax – 2% AER
Halifax has cut its rates twice since launching in December, though if you managed to snap up the 4% or 2.5% deals they will still be honoured. It’s available in branch, by phone or online.
Nationwide – 2% AER
If you can save more than £200 a month this is worth considering as it’s one of a few providers that lets you keep the rest inside an additional Cash Isa. It’s available online, in branch and over the phone.
NatWest – 2% AER
Like Nationwide, it’ll let you put extra cash into another Isa, and at the same rate. Get it in branch, phone or online.
HSBC – 2% AER
Available in branch, by phone or online.
Progressive Building Society – 2% AER
Northern Irish Building Society Progressive was recently paying 2.75% to new Hisa holders, but those signing up for the first time can only get 2% now. It's only available to Northern Ireland residents or existing customers.
Yorkshire / Clydesdale Bank – 2% AER
This account now sits within the pack of banks paying 2% interest, after previously paying 0.7% It’s available by phone, in-branch or online.
Aldermore – 1.75% AER
Available by post, by phone or online.
Newcastle Building Society – 1.51% AER
You’ll only get the advertised rate if you add to your savings every month. Otherwise the rate drops to 0.51% AER. You can get it by branch, post or online.
Santander – 1.5% AER
Despite previously offering 4% (which will be honoured for people who signed up to that deal), Santander pays a paltry 1.5% to new customers, though people with a 123 Account will get a slightly more generous 2%.
Bank of Scotland – 1.5% AER
Branch, phone and online.
Lloyds Bank – 1.5% AER
Available in branch, phone or online.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.