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Top Cash ISAs 2014/15 2.4% AER cash ISA loophole

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ISAs: They're a piece of cake

New rules mean that everyone over 16 in the UK can now save up to £15,000 in a cash ISA a year - a savings account where you don’t pay tax on the interest. You can get up to 3% and the earlier you save the more you'll earn.

Don't worry if you've opened one in previous tax years, you can open another with whichever provider you choose. If you've already opened one for the current tax year you can top it up to £15,000.

ISA Countdown

If you don't use it, you lose it.

Cash ISA need-to-knows

1 Cash ISAs now have £15,000 savings limit

You've probably heard of cash ISAs, they've now been around for more than 17 years. But in July 2014 they underwent the biggest change since they were introduced. You used to be only able to put £5,940 into your cash ISA (this had risen from £3,000 when they were introduced.

But, since 1 July, you're now able to save a massive £15,000 without the taxman being able to take his cut, as he does with normal savings accounts.

2 Cash ISAs are NOT complicated

Everyone in the UK over 16 has a £15,000 cash ISA allowance. The allowance can be used to max out your cash ISA or stocks & shares ISA - how you split the money is entirely up to you.

The slate's wiped clean at the beginning of every tax year on 6 April, so even if you opened up one just before the tax year ended on 5 April, you can do it all over again.

And even if you opened a cash ISA at the beginning of the new tax year on 6 April and maxed that out with the full £5,940, you can top it up to the full £15,000 any time before 5 April, and it'll all count as your 2014/15 allowance. See full ISA FAQs.

There are easy-access and fixed options, just like normal savings. It's that simple. But for some reason many over-complicate them.

Don't be scared. Ideally, we wish we could hypnotise people so when they read "cash ISA", they actually see:

It's a savings account you don't pay tax on.

Know this and it all becomes clearer. Some people don't have a cash ISA because they believe they have to lock their money away. But it's just a savings account - you don't need to lock cash away if you choose an easy-access account.

Still not sure? It's time for an analogy

For years now - whether on TV, radio or in his book - Martin's used the same analogy to explain ISAs. If it ain't broke, don't fix it, so here come the cakes...

A potential ISA scenario

Quick Q&A on ISA basics:

What happens to the allowance if I haven't used it by the end of the tax year?

Can I make withdrawals?

How many ISAs can you have?

Can I split between a fixed and easy access ISA?

Is my money safe in an ISA?

3 Unlike normal savings accounts, earn £100 in ISA interest, keep £100

The gain is simple. In a cash ISA, you keep the whole amount - that £100 in interest goes straight into your savings pot without even thinking about stopping for the taxman.

This is unlike a normal savings account where, if you earn £100, you'll only receive £80 after basic-rate tax. After higher rate tax, it's £60.

So, as long as rates are similar, ISAs win. This should spell it out:

On £100 interest, higher rate taxpayers keep £60, basic rate taxpayers keep £80, but all taxpayers keep £100 in an ISA

4Cash in a ISA stays tax-free YEAR AFTER YEAR

Cash in a ISA stays tax-free as long as it's in there. The aim's to protect more of your money which is why we nag you about using the full ISA allowance if you can.

If you miss a year now, you might regret it five years later. If you've big savings, you can gradually protect more and more of your cash. Those who started saving when ISAs were first introduced in 1999 could now be sitting on a good tax-free lump sum.

Money in an ISA stays tax-free year after year - you could have £62,000 plus interest now

5 Check rates on old ISAs, as many are pitiful

Savings providers like us to think once our money's in, it's a done deal. This is wrong. You have a right to transfer past years' cash ISAs to the new best buy ISAs - and if you've got serious cash saved in them, this can make a massive difference.

Check rates on ISAs opened in previous tax years. If the rates don't come close to the current best buys, ditch and transfer. It might also be worth consolidating all past ISAs into one new shiny ISA. This makes it much easier to transfer again in the future.

For full pros and cons on this, see the full Cash ISA Transfers guide, though our best buys below detail whether accounts allow transfers.

6 Earn 5% on ISA money now

ISA rates are higher than normal top savings rates, but they are beaten by high rates on some current accounts to persuade you to switch to them.

As many current accounts only allow sub £3,000 worth of savings, it's worth saving in both a current account and a cash ISA if you've got more than that. Alternatively, you can earn 3% with Santander on the full £15,000.

Of course the key is you don’t pay tax on ISAs, so you have to compare it to the after tax rate. Here are the top picks - click the links below for full info on these accounts.

- Santander 123 pays 3% on £3,000 - £20,000. That’s 2.4% after basic-rate tax, and 1.8% after higher rate.
- Club Lloyds pays 4% on £4,000 - £5,000. For basic-rate taxpayers that's 3.2% after tax, for higher-rate payers it's 2.4%.
- TSB pays 5% on up to £2,000. That's 4% after tax for basic-rate taxpayers, 3% for higher rate.
- Nationwide FlexDirect pays 5% on up to £2,500 for a year, 1% after that. That's 4% after tax for basic-rate taxpayers, 3% for higher rate.

You also need to look at the bigger, long-term picture. Saving in a ISA guarantees tax-free status on that cash for as long as it's kept in a ISA. Interest on a current account is likely to be short-lived. Though in an ideal world, you'd have both. Try this:

First, put cash in a high-interest bank account. As long as the after-tax rate beats your chosen ISA, do this now rather than using your ISA allowance. See Current Accounts for the full options.

Then, use the cash to open a ISA in March 2015. A week before the tax year ends, move the cash out of the bank account to fill your ISA allowance. That way you get the short-term high rate from the banks, but you still get the tax-free benefit of your ISA allowance. See Martin's ISAs vs high-rate bank accounts blog from earlier in the year for full details.

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Top easy-access ISAs - best if you know you'll need access

Easy-access cash ISAs mean you can take out your money when you want it. Once you've taken it out you can't put it back in.

However, there are fixed rates that offer some access so don't plump for an easy access unless you know you need to be able to withdraw the money within the first year.

BM Savings

Post Office, 1.55% AER incl 0.8% bonus for 18mths. Apply by post.

  • Rate: 1.55% AER variable (incl 0.8% bonus for 18mths)
  • Min deposit: £100
  • Interest paid: Annually
  • Allows previous ISA transfers? Yes
  • Transfer out penalties? No
  • Access: Branch, post and phone
  • Safety: Shared £85,000 UK protection

The Premier Cash ISA account from Post Office pays a top 1.55% AER rate. It includes a 0.8% bonus for 18mths, which effectively acts as a rate guarantee. However, once the bonus ends, the rate will plummet, so you'll need to diarise to transfer in 18 months' time.

You can deposit from £100 up to your annual £15,000 ISA limit at any point during the tax year, however you can only make two withdrawals. If you make more than two you'll either need to transfer or close your ISA. Remember: once you've used the full allowance you can't put any money back in until the new tax year starts on 6 April.

The account has to be opened by post, though once opened it you can pay in at branch, by phone or post. However, you'll only be able to withdraw cash by phone or post. Your interest will be paid annually.

NS&I

NS&I 1.5% AER 100% savings safety. Min £1. No transfers.

  • Rate: 1.5% AER variable
  • Min deposit: £1
  • Interest paid: Annually on 5 April
  • Allows previous ISA transfers? No
  • Transfer out penalties? No
  • Access: Online or by phone
  • Safety: 100% protected - fully Govt backed
1.5,1

The NS&I Direct ISA pays a variable 1.5% AER but it's on new ISA cash only. NS&I protects 100% of your cash, but because you can't transfer old ISAs in, this isn't such a big draw, as all providers protect up to £85,000.

You can save from £1 up to the £15,000 ISA limit, but transfers in of previous years' ISAs are not allowed. If you want an account that lets you transfer in old ISAs, see full options in the Cash ISA transfers guide.

The account can be opened and managed online or on the phone, and it's easy access, so you can withdraw your cash at any time.

There's no bonus on the account, so monitor the rate and be prepared to ditch and transfer if it drops (though NS&I's rates rarely change but do check it regularly). Interest is paid annually on 5 April.

Tesco

Tesco, 1.45% AER* Incl 0.2% bonus for a year. Apply online or by phone.

  • Rate: 1.45% AER incl 0.2% bonus for a year
  • Min deposit: £1
  • Interest paid: Annually
  • Allows previous ISA transfers? Yes
  • Transfer out penalties? No
  • Access: Online or Phone
  • Safety: Full £85,000 UK protection

The Instant Access Cash ISA from Tesco Bank pays 1.45% AER on balances from £1, plus you can transfer in ISAs from previous years. You can also top it up throughout the year to £15,000, and make unlimited withdrawals if you need.

Remember, though, that if you make a withdrawal, you can only replace the money later on if you haven't already maxed out your cash ISA limit (£15,000 in 2014/15).

You need to open the account online or by phone and must deposit at least £1. You can make withdrawals either online or by phone.

The rate includes a 0.2% bonus for 12 months, so once the year is up the rate will drop by at least that much – if this rate can be beaten then, be ready to transfer to another provider.

Interest is paid annually on the account's anniversary.

Top notice cash ISA

If you don't need instant access to your cash you can boost your rate slightly with a notice cash ISA. With these accounts you can have access to your cash should you need it, but you'll need to let them know in advance - often a couple months notice.

Clydesdale

Clydesdale/Yorkshire Bank, 2% AER 40-day notice. Apply by phone, by post or in branch.

  • Rate: 2% AER variable
  • Min deposit: £24,000
  • Interest paid: Annually
  • Allows previous ISA transfers? Yes
  • Withdrawal restrictions? Yes
  • Access: Post or branch
  • Safety: Shared £85,000 UK protection
2,24,000

If you've at least £24,000 built up in old cash ISAs, and you're not going to need instant access to it, the 40-day notice ISA from Clydesdale/Yorkshire Bank pays a top rate of 2% AER.

If you want to make a penalty-free withdrawal from the account you'll need to give 40 days’ notice, otherwise you'll be charged a £30 fee or 40 days loss of interest (whichever is greater) for each withdrawal, and your account will be switched to an instant access ISA (which pays just 1.1%).

It's worth keeping an eye on how much money you withdraw as if the balance drops below £24,000 you'll only earn 1.5% AER, and if it falls below £9,000 you'll earn just 1% AER on the entire balance.

The account can be opened over the phone, by post or in branch and access is in branch or by post only. Interest is paid annually on 31 December. There's no bonus rate on the account, so keep an eye on it – if the rate drops make sure you transfer your money to a better provider (don't forget to give 40 days’ notice).

Other important options to check

  • Boost the rate if you’ve an HSBC bank account. Existing HSBC customers who have its Premier (a top packaged account option for high-earners) or Advance accounts (or those who switch to them) can get its Loyalty Cash ISA, paying 1.6% or 1.5% AER respectively.

    To keep the rate, you must make a deposit at least every 12 months - if you don't, it drops to 0.5%, although your original rate will return when you make your next deposit.

  • Check local deals near you. Some building societies are giving higher rates on their branch-only ISAs. If you're walking by your local building society, it’s worth popping in to see what branch-only rates they’re offering.
  • Check your credit union. Some credit unions now offer ISAs. For example, Voyager Alliance Credit Union (you must work in transport) has a 2% ISA. Check the Credit Unions guide for more options, and how to find your local credit union.

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Top fixed-rate cash ISAs - even if you need access

Usually, fixed-rate savings are designed to lock money away for a set period. But by law, cash ISA providers MUST allow you access to your money, whenever you want it, though most will levy heavy penalties to do so.

However, a few fixed rates have lower penalties, or allow you some access to your cash. If they pay enough and the penalties are low enough, it's worth getting one, even if you have no intention of keeping it for the full term.

Go for the account that pays you the most over the time you need it.

All are accessible online or by post and in branches, and allow some form of access. The table below will guide you through when each one is likely to be right for you.

Our table has the top pick for these - the ones that have the smaller penalties. We've also included the top rate fixed ISA for each of the time periods you can fix for - though watch out, as some of these have hefty penalties.

Confused by this? Read for full info

Effective rate if withdrawing after (2):
Provider Rate (AER) Fixed Term Allows transfers? Withdrawal penalty: Year 1 Year 2 Year 3 Year 4 Year 5
Top pick deals with low penalties
2.4% (min £1) Until 30 Nov 2018 No 120 days' interest (1) 1.61% 2% 2.14% 2.4% -
Other fixed ISAs (all allow transfers & early access/closure)
2.2% (min £1) Four years Yes 320 days' interest (1) 0.27% 1.24% 1.56% 2.2% -
2.15% (min £1) Three years Yes 120 days' interest 1.44% 1.79% 2.15% - -
2.02% (min £1) Two years Yes 180 days' interest (3) 1.02% 2.02% - - -
1.7% (min £500) One year Yes 90 days' interest 1.7% - - - -
(1) Partial withdrawals not permitted - you must close the account. (2) The effective rate will be slightly less if you add more than one lump sum but the accounts will be in roughly the same order as keeping the same amount in there. (3) Assumes full balance is withdrawn and the account is closed. No penalty on three withdrawlas at 10% of the balance each time, 180-day penalty is applied to the remaining closing balance.

Top ISA if you want to save each month

You can set up a standing order and save money in an easy-access ISA every month, but special regular saver ISAs often offer a slightly better rate for this.

But remember, the rate is calculated based on money being in the account for a full year. With regular savers, it takes a year to build up to the maximum.

Newcastle BS

Newcastle BS, 2.57% AER Top if you don't want access and can save regularly

  • Rate: 2.57% AER variable
  • Monthly deposit: £0 - £1,250 (penalty if £0/month)
  • Interest paid: Monthly
  • Allows previous ISA transfers? No
  • Withdrawals: No
  • Access: Online, branch or post
  • Safety: Full £85,000 UK protection

If you don't need access the Newcastle BS Big Home Saver ISA pays 2.57% AER for a year, if you deposit £1 to £1,250/month.

The rate is decent if you're looking to save up to £1,250 a month, or, if you've only got a small amount to save you can whack it in here and keep it earning a higher rate for the full year. But if you have a large amount to pay in as a lump sum then you're better off going with an easy access ISA as you'll earn around £25 more if you stick the full £15,000 in Post Office paying 1.5% than you would if you drip fed it in here.

You must pay in to the account every month, but you can vary the amount you pay in each month. If you miss a payment or make a withdrawal, you'll lose the 1% bonus for that month. The rate will then go back up the following month if you make a deposit and don't make a withdrawal.

A new tax year means a big new ISA allowance We'll tell you how to use it, rate-boosting loopholes and new deals

To see how switching will affect your savings, put the interest into the
ISA Savings Calculator.

Top ethical cash ISAs: Earn up to 2.4% AER tax-free

EthicalConsumerScale

Ethical savings accounts - where providers behave ethically in terms of the environment, human rights and more - have jumped in popularity. Our main focus always is telling you the top savings rates, but to match demand we've worked with Ethical Consumer to list the top-paying accounts that also rate highly on their ethics.

Easy access

All these accounts have the full UK savings safety protection. See the graph on the right for what Ethical Consumer's ratings mean.

Fixed

ISA Countdown

If you don't use it, you lose it.

Use the net to compare top rates

Fixed rate deals can change regularly. For a full list of fixed rate ISAs, use the MoneySupermarket* comparison (select cash ISAs and then bonds) or Moneyfacts. Though remember, they're just a simple list of top rates, so ensure you check for the possible pitfalls noted in this article.

The Savings Calculator

When using the calculator below, use the AER (annual equivalent rate) for increased accuracy. It should be listed on your statement. Obviously as most accounts' interest rates are variable, the answers will change if the rate does, so only use the calculator to get a rough indication of your likely outcome.

How much do you need to save? £
How much do you already have? £
How much can you save a month? £
What’s the interest rate? %
How much do you need to save? £
How much do you already have? £
What’s the interest rate? %
When do you need it by? years and months time.
How much do you already have? £
How much can you save a month? £
What’s the interest rate? %
How far ahead do you want to look? years and months time.

The calculator assumes you put money in at the beginning of each month, so if this isn't how you do it, the answers will be ever-so-slightly out. If you don't make regular deposits but put in lump sums, figure out the monthly equivalent for a rough answer. Feel free to play with the results to see how your savings are affected.

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ISA FAQs

Here's a list of the most common queries. If you've got a question we've not answered below, in the text above or in Martin's ISA video below, suggest a question in the forum.

Moving your ISA

I’ve got several ISAs from previous years – can I put them all into one?

If I open a ISA in the current tax year, then the rate drops, can I move it?

Can I transfer my ISA to someone else?

Alternatives to ISAs

Is it even worth saving in an ISA as rates are so low?

Should I offset my mortgage instead of putting cash into an ISA?

Should non-taxpayers bother with ISAs when it makes no difference?

Cash ISAs vs premium bonds - what's best?

Using and accessing your ISA

Can I open a joint ISA with my partner?

What happens to money in a cash ISA if the person has passed away?

Will I get any interest if I haven't had money in the account for a full year?

If I take money out of my ISA, do I then pay tax on it at my usual rate?

Should I use my ISA allowance for cash or stocks & shares?

Cash ISA video Q&A with Martin Lewis, July 2014

Join in the Forum Discussion:
Top Cash ISAs 2014/15
If you haven't already

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