NatWest ISA pays up to 4.01%
NatWest has launched a new cash ISA account offering an instant access cash ISA with a headline rate of 3.51% AER.
Customers who already have an Advantage Gold or Private account with NatWest will also receive an additional bonus of 0.5% for 12 months – bringing the AER to 4.01%. However, to get this bonus you must open your account before 20 April 2009.
The interest on this ISA is variable, so it could fall in-line with the Bank of England base rate. However, NatWest guarantees that this account will not pay less than the base rate (which is currently just 1%) until 1 February 2010.
You can open this account with an initial deposit of £1 and can save up to your full cash ISA allowance of £3,600. Withdrawals are allowed without attracting a penalty, but bear in mind that once you withdraw money out of an ISA you lose the equivalent value from your tax-free allowance.
Unfortunately, this ISA doesn’t accept transfers so you won’t be able to move any ISA savings from previous tax years into NatWest’s deal. Interest is paid on a monthly basis.
There is a big catch with this deal – you need to have a NatWest current account or instant access savings deal before you can open this ISA.
Other NatWest ISAs
If you do want to transfer your ISA savings from a previous tax year, then NatWest also offers an e-ISA account paying up to 3.51% AER that accepts transfers.
If your balance is less than £9,999 then you’ll earn an AER of 3.25%, but move more than £10,000 into this account and your rate will increase to 3.51%.
There are no withdrawal penalties on this deal and interest is paid monthly. Bear in mind that this deal can only be accessed via the internet.
Elsewhere in the market
1. Variable-rate ISAs
NatWest’s 3.51% ISA offering is pretty competitive when compared to other variable-rate ISAs.
Marks and Spencer Money pays 3.1% on its Advantage Cash ISA, which can be opened with a £100 upfront deposit. This deal includes a 1% bonus until 21 April 2010.
M&S allows you to make unlimited withdrawals without penalty from this account, and you can also make regular payments of at least £25 by monthly direct debit. Transfers are accepted. Read more about this deal.
Or Egg has a cash ISA paying 3.05% AER on deposits from £1. This deal will at least match the Bank of England base rate until 5 April 2009, and allows regular payments as well as one-off deposits. Withdrawals are also permitted without penalty, but transfers are not accepted.
Finally, Earl Shilton Building Society pays 3.05% AER on its 90-day cash ISA, which can be opened with a deposit of at least £10. Withdrawals are allowed, as long as you give 90 days’ notice, and transfers are accepted.
2. ISAs accepting transfers
The M&S Advantage Cash ISA and Earl Shilton’s ISA both accept transfers. Elsewhere, Halifax pays 4% AER on its fixed-rate ISA – but bear in mind this is a four-year bond and no withdrawals are allowed during this period.
You can open this account with a £500 deposit, but no additional deposits are permitted. If you want a shorter term, then you can opt for Halifax’s one-year fixed ISA account, which pays 3.1%, or its two-year deal paying 3.5%. Its three-year ISA pays 3.7% AER.
Elsewhere, Standard Life Bank’s cash ISA Direct Access pays 3% AER on deposits from £1. This rate is variable, and withdrawals are permitted.
3. Fixed-rate ISAs
If you would prefer the security of a fixed-rate of interest, and have a lump sum of at least £500 to deposit, then M&S also offers a fixed-rate ISA. If you choose to fix for one year, you'll earn 2.5% interest, rising to 2.75% if you fix for two or three years.
However, bear in mind that any early withdrawals will see you hit with a fixed flat penalty of up to £100.
Dunfermline Building Society offers a fixed-rate ISA paying 3.75% AER until 31 October 2011. You need to deposit £100 to open this account and further deposits are permitted. Withdrawals are also allowed but you will lose 180 days of interest as a result.
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.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
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.
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.