New Isa: where to find the best cash Nisa rates
The New Isa (Nisa) has arrived, meaning you can now put up to £15,000 in a cash account. If you're planning to take advantage of the new allowance and need a new home for your Nisa cash savings, here are the best rates around.
Fixed-rate cash Nisas
Sitting at the top of the five-year fixed-rate best buy table is the Julian Hodge Bank's Cash Isa. It pays 2.85% and transfers are allowed into it. The minimum opening balance to access the deal is £5,000.
Coventry Building Society is best in the four-year fixed-rate category, with its Fixed Rate ISA (21) 31.05.2018 account paying 2.75%. However, unlike the Julian Hodge deals, Coventry does not allow transfers in.
The best deal over three years is Virgin Money's Fixed Rate Cash E-Isa Issue 81 which offeres 2.25% until July 2017. The account can be opened with just a £1 deposit online and transfers in are premitted.
Kent Reliance are top of the table for both one and two year fixed deals. It will pay 1.75% over twelve months and 2.10% over two years. The minimum opening deposit for each is £1,000.
Variable-rate cash Nisas
The best rate on offer is Nationwide's Regular Saver ISA Issue 2, paying 2.59% gross or 2.33% AER. Up to £1,250 can be paid in monthly to the easy-access account, but it doesn't accept transfers in. To find the next best-paying account that does, you have to drop down to the fourth-best rate currently available -1.5% AER, as paid by the Virgin Easy Access Cash E-ISA Issue 9.
Anna Bowes at SavingsChampion.co.uk, which provided the independent best-buy data, said of the account: "Unlike some other cash Isas currently on the market, this account has a low minimum balance, no withdrawal restrictions and accepts transfers in of previous ISA subscriptions."
There's another variable-rate cash Nisa paying 1.5% AER that accepts transfers in but it's sitting just behind the Virgin offering.
Furness Building Society's Cash ISA 90 (Issue 2) only pays 1.5% on balances of £3,001 to £9,000. While the rate improves to 1.60% on balances of £9,001 and above, for anything between £1,000 and £3,000 it's just 1.4%.
The mutual Scottish Friendly is, however, warning savers to be wary of holding their full Isa allowance in a cash Nisa.
In a statement, it explained that in recent weeks a number of savings providers have started to lower their already low interest rates even further in anticipation of the launch of the Nisa.
For example, Leeds Building Society cut the rate on its Access Isa from 1.25% to 0.75% and Santander has cut the interest paid on its two-year fixed-rate Isa from 2% to 1.5%.
That said, some rates have gone up, such as Sainsbury's Bank's variable cash Isa, which now pays 1.45% on balances of more than £500 - up from 1.3% - and allows transfers in, and most of the Virgin Money Isas.
The top paying Junior Nisa is that of new building society on the block, the Family Building Society. The mutual is a virtual building society so while it has no branches, accounts can be opened online at familybuildingsociety.co.uk. Its Junior Nisa has a tiered interest rate, paying 2.5% on balances of £3,000 and above, 2.25% between £1,000 and £2,999.99 and 1.75% between £1 and £999.99. Transfers in of previous years’ Junior Isas are allowed.
Anna Bowes said: "It's been a disappointing first Nisa season and it's not a good situation for savers. Since the so-called ‘Budget for savers' at the end of March, there have been 92 cuts to variable-rate Isas - that gives you a good indication of how much rates are falling.
"In January, the average variable rate Isa paid 1.41%. By 30 June that had fallen to 1.23%. And over the best part of a year, that was down from 1.59% on 4 July 2013. The only place there has been some competition with rates nudging slightly higher was in the longer-term fixed-rate cash Isa space."
Neil Lovatt, director of financial products at Scottish Friendly, said: "For every one investment Isa taken out, three cash Isas are opened."
He added: "People are being put off by what they think are pure equity investments and instead are opting for accounts that offer poor returns on their cash. The changes introduced in the budget gave savers a glimmer of hope and incentivised people to put more money aside each month.
"However, the cash Isa market has not risen to the opportunity, instead choosing to offer low rates of interest on cash Isas and in some cases actually reducing their rates for fear of overly high inflows."
Data from the Investment Management Association reveals how much better off savers would have been had they invested in stocks and shares rather than parking their money in a cash Isa over the 15 years Isas have been around.
Had they invested the annual Nisa limit of £15,000 in an equity fund in the IMA UK All Companies sector over the last 15 years, the average return would have been £480,000. This compares to just £275,000 they would have made in the average cash Isa.
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.
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.
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.