M&S launches new cash ISA

22 January 2009
M&S Money has launched a new cash ISA that offers a fixed or variable rate of interest – or a combination of both.

Savers opting for a variable rate of interest will earn 3.1% AER including a 1% bonus until 21 April 2010; however, as the rate of interest is variable it could fall if the Bank of England cuts base rate.

On the plus side, you can make unlimited withdrawals without penalty and also make regular payments of at least £25 by monthly direct debit.

If you would prefer the security of a fixed rate of interest, and have a lump sum of at least £500 to deposit, then opting for M&S’ fixed-rate ISA could be your best bet. 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.

Both M&S’ ISA options accept transfers.

With interest rates continuing to fall and household budgets under strain, many ISA savers are stuck between a rock and a hard place.

On one hand, fixed interest ISAs offer peace of mind as you know exactly what you'll earn on your money. But on the other, if you need to make withdrawals in an emergency you face a penalty.

One option available with the M&S ISA is combining the two different rates of interest. So, you can choose to lock a proportion of your £3,600 savings away in a fixed-rate aspect of the ISA and still have access to the rest if you need emergency access.

Andy Ripley, deputy Chief Executive of M&S Money, says: "We encourage people to make the most of tax-free savings, especially as 42% of people we surveyed don't use their cash ISA allowance."

What else is out there?

Although M&S’ new ISA offers flexibility for savers, it’s rate is not the best out there. Birmingham Midshires has recently launched a one-year fixe- rate ISA paying 4.2% AER. You’ll need £500 to deposit upfront, and transfers are accepted.

Although fixed-rate ISAs are mainly aimed at people able to lock away a lump sum, BM does allow withdrawals by post. However, these are subject to a loss of 90 days' interest.

Further deposits are also permitted but, because this ISA is a bond, there is a limit to how much money can be invested in it. Once this limit has been reached, BM will close the ISA and no further deposits are allowed.

Elsewhere, Halifax also offers a fixed-rate ISA paying 4.1% on deposits of £500 – however, the term is four years and no further deposit or withdrawals are permitted during this period. Transfers from other ISAs are accepted.

Finally, Julian Hodge Bank pays 4% AER on its one-year fixed-rate ISA. Although withdrawals are allowed, these are subject to an exit fee. You can also only make withdrawals via post but transfers are accepted.

If you’d prefer a variable-rate ISA where access is easier, rates are slightly lower. Dudley BS pays 3.6% on its cash ISA on initial deposits of £100. Transfers are allowed.

Standard Life, meanwhile, pays 3.5% on its direct access ISA, which can be opened with just £1. You can make withdrawals without penalty and transfers are accepted.

Or Manchester Building Society pays 3.5% on its Premier Instant ISA. You'll need to deposit £1,000 upfront and you can make unlimited withdrawals.

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