Abbey launches 3.5% ISA
Rates on cash ISAs continue to creep upwards, with the launch of a new deal from Abbey that pays 3.5% AER.
The new Reward ISA, which is also available from Abbey’s sister banks, Alliance & Leicester and Bradford & Bingley, has taken top place in the variable rate ISA best-buy tables. The account’s headline rate is actually 1.5%, but at the end of the first year you’ll receive an additional 2% bonus.
The only condition is that you don’t touch your ISA savings during the first 12 months. The account does not accept transfers, but can be opened from as little as £1.
Abbey also offers a Direct ISA paying 2.5% variable for the first 12 months, that does allow transfers of ISA savings from previous tax years.
Reza Attar-Zadeh, director of savings and investments at Abbey, says: “Even in the current low interest rate environment the long-term benefits of holding money in a tax-free account remain the same as always.”
She adds that a basic rate taxpayer would have to find a savings account paying 4.37% to get the same return from Abbey’s Reward ISA.
Rates on cash ISAs have taken a battering, thanks to the Bank of England reducing the base rate from 5% in October to an historical low of 1% in February. It is expected to cut the base rate again this Thursday, potentially to as low as 0.1%.
However, with the end of the tax-year now on the horizon, the cash ISA market does seem to be picking up. Nationwide, Halifax and Chelsea Building Society all recently launched new fixed-rate ISA offerings paying 3% AER.
Best-buy variable rate ISAs
* Includes 2% bonus
|Marks & Spencer Money
Advantage Cash ISA
* Includes 1% bonus
|Standard Life Bank
Cash ISA Direct Access
|3%||Yes||* £1 deposit|
|Holmesdale Building Society
|3%||Yes||* Withdrawals subject
to 30 days' notice
* £3,000 deposit
|Dunfernline Building Society||3%||Yes||* Withdrawals subject
to 90 days' notice
* £1 deposit
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.
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.