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Top Cash ISAs 2014/15 2.75% AER cash ISA loophole

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ISAs: They're a piece of cake

Happy new 2014/15 tax year! As the clock clicked past midnight on the morning of Sunday 6 April, everyone over 16 in the UK got a new £5,940 allowance to put in a cash ISA - a savings account where you don’t pay tax on the interest and can get up to 2.75%.

Don't worry if you've opened one in previous tax years, you can open another with whichever provider you choose. Plus, new rules mean that from 1 July, 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 are NOT complicated

Everyone in the UK over 16 now has a brand new £5,940 cash ISA allowance (or £11,880 in stocks and shares). Even if you opened one just before the tax year ended on 5 April, the slate's wiped clean and you can do it all over again. For more details, see the ISA Guide.

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 year?

Can I make withdrawals?

How many ISAs can you have?

Is my money safe in an ISA?

2 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

3 On 1 July, limit rises to £15k - but don't wait

Since 6 April, everyone's been able to put £5,940 into a cash ISA (£11,880 stocks & shares). But from 1 July, ISAs turn into new ISAs (NISAs) with a £15,000 allowance, which can be ALL in cash if you choose. Here are two questions people ask the most:

Q. If I open a cash ISA now, what happens in July?
A. You'll then be able to top it up to the full £15,000 if you choose, and it'll all count as your 2014/15 allowance. See full NISA FAQs.

Q.Should I wait until July for higher rates?
A. Many have asked in the hope there'll be better deals due to the publicity for the start of NISAs.

But the deals then are unlikely to be that hot. This ISA season (the time around April, when one tax year ends and a new one starts), we've seen virtually no uplift. Banks don't need savers' cash, as the Government's giving it to them through Funding For Lending. It's not worth waiting.

Even if rates are a smidgeon better in July, it's safer to open a top easy-access cash ISA so you bag the gain now. You can transfer it to a better rate then (as long as the new provider accepts transfers).

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

Cash in an ISA stays tax-free as long as it's in there. The aim's to protect more of your money which is why we often 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

ISA 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 buys - 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. 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.

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 in brief, but 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.
- Lloyds' Club 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%.
- 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 an ISA guarantees tax-free status on that cash for as long as it's kept in an 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 an 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 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.

Nationwide

Nationwide, 2.5% AER* Top rate, great for smaller amounts, around £2,000

  • Rate: 2.5% variable AER
  • Monthly deposit: £0 - £1,250 (min £1 to operate)
  • Interest paid: Annually
  • Allows previous ISA transfers? No
  • Withdrawals: Unlimited
  • Access: Online or branch
  • Safety: Shared £85,000 UK protection

The Nationwide* Regular Saver ISA paying 2.5% AER is designed for you to save each month but you don't need to if you have at least £1 in it.

The maximum monthly deposit's £1,250, so if you've less to save, you could whack it in there now as a lump sum and effectively use it as an easy access account. Or if you've a bit more than that, dripfeed it over a couple of months - the higher rate makes it worth it.

Plus for those who can, the high monthly limit allows you to start saving early towards the £15,000 ISA limit from July.

Santander

Santander, 1.6% AERTop standard rate, best if you've the full lump sum

  • Rate: 1.6% AER variable
  • Min deposit: £500
  • Interest paid: Annually
  • Allows previous ISA transfers? Yes
  • Withdrawals: Unlimited
  • Access: Online/phone/branch
  • Safety: Shared £85,000 UK protection

If you want easy access, the top open-to-all account is the Santander Direct ISA Saver (issue 6). It pays 1.6% AER for a year, and allows transfers in from previous years' ISAs.

You can save from £500 and make unlimited withdrawals from the account.

Other important options to check

  • Top easy-access deal for just £1 that allows transfers. The ISA Saver Online from Halifax* (min £1 - allows transfers) is 1.55% AER variable, including a 1.3% year-long bonus. As you know the rate is likely to drop substantially in 12 months, you'll need to transfer. In the meantime, it's an effective strong-rate guarantee.
  • Boost the rate if you’ve a Nationwide bank account. FlexDirect, FlexPlus or (some) FlexAccount current account holders can get Nationwide's Flexclusive ISA (issue 7). It pays 1.75% AER from £1 but doesn't allow transfers in.

    To be eligible, you'll need to have switched using its account transfer service in the last four months or have paid in £750/mth for three months. See Best Bank Accounts and Best Premier Current Accounts to compare accounts.
  • 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.

  • Live in or near London? Get 1.65% easy access. Metro Bank's branch-only Instant Access Cash ISA pays 1.65% AER on balances from £1, and it allows transfers.
  • Check local deals near you. 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. If you want a two-year fix, the best option is currently a four-year account.

All are accessible online, 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.

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.

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
2.75% (min £5,940) Until 31 May 2018 No 120 days' interest (1) 1.85% 2.3% 2.45% 2.75% -
3% (min £500) Until 16 May 2019 Yes 240 days' interest (1) 1.03% 2.02% 2.34% 2.51% 3%
2.75% (min £500) Until 20 May 2019 Yes 180 days' interest 1.39% 2.07% 2.3% 2.41% -
2% (min £500) 18 months Yes 135 days' interest (1) 1.26% 2% after 18 months - - -
2.3% (min £500) 2 years Yes 120 days' interest (1) 1.54% 2.3% - - -
(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.

In summary, Coventry is best for one to four years, beating other fixes even if you withdraw before the set term. It doesn't allow transfers, though - so if you want a shorter fix on old ISAs, Santander (if you're a 123 customer) and Halifax are good options.

If you want to fix for longer, Skipton's five-year account wins. It's a decent pick for transfers and new money if you're almost certain you won't need access for at least three years. Even with penalties, the rate then beats the current top three-year.

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.

Nationwide

Nationwide, 2.5% AER* Top if you need access and can miss payments

  • Rate: 2.5% variable AER
  • Monthly deposit: £0 - £1,250 (operate with £1)
  • Interest paid: Annually
  • Allows previous ISA transfers? No
  • Withdrawals: Unlimited
  • Access: Online or branch
  • Safety: Shared £85,000 UK protection

We mentioned this Nationwide* account above as a way to boost your easy-access rate, but it's also a good regular saver. It pays 2.5% AER on deposits between £1 and £1,250 and allows unlimited withdrawals - great if you think you'll need it.

Plus for those who can, the high monthly limit allows you to start saving early towards the £15,000 ISA limit from July. And although you need £1 to open it, there's no funding requirement after that.

Newcastle BS

Newcastle BS, 3.02% AER Lock in for a higher rate on up to £1,250/month

  • Rate: 3.02% variable AER
  • Monthly deposit: £1 - £1,250 (penalty if £0/month)
  • Interest paid: Annually
  • Allows previous ISA transfers? No
  • Withdrawals: Unlimited
  • 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 3.02% AER, if you deposit £1 to £1,250/month.

The rate includes a 1% bonus providing you don't make withdrawals or miss a payment. If you do, it pays 2% for that month.

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 3% 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.

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 an 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?

Can I set up a monthly standing order into my ISA?

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, April 2014

Join in the Forum Discussion:
Top Cash ISAs 2014/15
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