Should I opt for a savings account that pays better than a cash ISA?

Q: I'm always told ISAs should be my first port of call when it comes to saving but I've found a savings account paying a better rate than a cash ISA. Is it still better to opt for the tax-free savings vehicle?

A: There are lesser-known savings accounts offered by some providers, which are designed specifically for those building up a deposit to buy a house. While the interest rates are, like many accounts at the moment, nothing to write home about, some have cashback deals or give you easy access to a mortgage if you fulfil certain criteria or save a certain amount.

In your case, Nationwide offers a Save to Buy account aimed at first-time buyers, and offering a 5% deposit mortgage at up to 95% loan to value after six months. This is a particularly attractive offer as 95% mortgages are currently hard to come by, though being accepted for the savings account does not guarantee a mortgage.

You must pay a minimum of £50 into the account per month and there are regular saving requirements to be eligible for the mortgage. The account pays 2% interest on balances up to £20,000 - the maximum that can be deposited.

There are cashback rewards available on completion of the mortgage.

But such schemes have the whiff of a gimmick about them and when compared to other savings accounts, they don't quite stand up.

Find the best Cash ISA or savings account for you

Regular savers

Saving for a deposit is one of the biggest savings goals most people ever undertake, so it's worth considering other regular savings accounts that pay more. For example, the United Bank UK 90 Day Notice account pays 2.26%.

If it's going to take you a couple of years to save up and you don't need access to your money, you could also consider the two-year fixed-rate bond from the Islamic Bank of Britain, which pays 2.63%. The minimum deposit is £1,000.

Saving on such an account will not carry the sort of restrictions or ties Nationwide's Save to Buy account and mortgage might, so it's worth shopping around and making sure you're clear on any qualifications attached to a mortgage savings scheme.

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