Deal of the week
People with ISA savings from previous years languishing in low interest accounts could cash in with a new variable-rate ISA from Royal Bank of Scotland.
The instant access ISA pays up to 7.25% AER tax-free – but only on balances over £24,000.
RBS offers this deal to anyone with £1+ to deposit, but only people able to transfer previous ISA savings are set to benefit from a higher interest rate.
First-time ISA savers (or those with no ISA savings to transfer) will only receive between 4.25% to 5.25% AER (variable) on their money (for full breakdown see table below).
But transfer customers receive an additional 2% bonus that brings the top interest rate tier to a competitive 7.25% AER.
AER (excluding bonus)
|AER (with bonus)|
|£15,000 - £32,999||4.95%||6.95%|
|£9,000 - £14,999||4.65%||6.65%|
|£3,000 - £8,999||4.45%||6.45%|
|£1 - £2,999||4.25%||6.25%|
As with many top deals, the devil is in the detail. Savers tempted by this offer should really only consider it if they have an ISA to transfer - and the amount of cash they’ve saved tax-free in previous years is substantial.
You can only pay into one ISA per tax year – so this deal is only for people who have yet to open a new ISA for 2008/09.
Also, bear in mind that the 2% bonus is paid in two instalments, the first at the end of March 2009 and the other at the end of March 2010. And RBS will not except transfers from NatWest ISAs.
What else is out there?
This instant access ISA from RBS has a variable rate of interest. Currently, rates on the top easy access ISA deals are just over the 6% mark.
Ruffler Bank’s 30-day notice ISA pays 6.11% AER on deposits from £3,600. Or Icesave’s easy access ISA pays 6.10% on deposits of £1,000.
Elsewhere, Barclays Bank’s Tax Haven ISA pays 6.08% AER on deposits from just £1, but this rate includes a 1% bonus for 12 months.
Egg also accepts deposits of £1+, and pays 6.05%. Or National Counties Building Society pays 6.01% again on £1 deposits.
Bear in mind that while Ruffler Bank and Icesave both accept transfers, Barclays, Egg and National Counties don’t.
If you’d rather opt for a fixed-rate account, then rates are currently a little higher.
Bradford & Bingley and Principality both pay 6.25% AER on deposits of £3,600, but only the latter accepts transfers.
Julian Hodge Bank pays 6.2% for one year on deposits of £3,600 while Newcastle Building Society pays 6.19% AEB until 15 October 2009 on deposits of £500. Both accept transfers.
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.