Your cash can still earn 7%
Recent figures from the Bank of England suggest that average rates on cash ISAs at the end of January were a dismal 1.38% - down from 5.06% in the same month last year. As a result, increasing numbers of savers plan to withdraw their tax-free cash ISA savings, with many looking at stocks and shares ISAs as an alternative.
But several regular ISA savings deals – including Saffron Building Society’s – pay AERs that suggest cash savings haven’t completely cost their sheen.
Saffron Building Society’s deal can only be accessed via post or in-branch, but pays a fixed rate of 7% AER for one year. You’ll need £25 as an upfront deposit to open this account, and you must pay in between £25 and £300 a month in order to qualify for the rate.
As with all cash ISAs, the maximum amount you can save per tax-year is £3,600 but your money will grow tax-free. This account also offers instant access for withdrawals.
Unfortunately, this ISA does not accept transfers for the first 12 months, so you won’t be able to earn 7% interest on ISA savings from previous tax years.
In addition, if you miss a monthly payment, you will be automatically moved into Saffron's Easy Access ISA – currently paying just 0.85%.
First Direct also offers a regular saver ISA paying 7% AER, fixed for 12 months. Like Saffron Building Society, you will need to put between £25 and £300 into this account each month. However, partial withdrawals are not permitted.
Again, transfers are not accepted and if you miss a payment you will see your money moved to a standard e-ISA paying 1.4% AER.
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.