NatWest 7.32% ISA
NatWest has launched a new ISA deal paying up to 7.32% AER for people with previous tax-free savings to transfer.
While the headline rate on this deal looks extremely attractive, there are a few conditions. The rate you actually earn on your money depends on how much cash you put into the account.
The basic AER on this product is 4.6% and anyone depositing £1 plus will receive this amount.
However, anyone making a transfer from another provider (other than Royal Bank of Scotland, which owns NatWest) will benefit from a 2% bonus for the first 12 months – bringing your AER to 6.67%.
This rate increases further as your balance does. For transfer customers, depositing more than £9,000 will earn you 6.87% AER, more than £18,000 will earn you 7.16%, and more than £27,000 will earn you 7.32%.
Other features of this deal include no penalties for withdrawals, as well as access via phone, post, branch and the internet.
However, bear in mind that interest is earned monthly, so you won’t benefit from compound interest, and that this account is only available to people that hold or open an instant access NatWest account. Finally, the interest rates on this deal are variable, so could fall if Bank of England base rate does.
How does it compare?
Top cash ISAs
|Barclays Bank |
Tax Haven ISA
Includes 1% bonus
|Egg Cash ISA||6.05%||£1||No||Base rate guarantee|
|National Counties |
Guaranteed Cash ISA
|6.01%||£1||Yes||No withdrawal penalties|
plus base rate guarantee
|Principality e-ISA||6%||£1||No||No withdrawal limitations|
|6%||£1||Yes||Four penalty withdrawals |
|Source: Moneyfacts 10/10/08 |
* All accounts have variable interest rates
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 effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
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.