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Top Cash NISAs 2014/15 2.85% AER cash NISA 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 NISA 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.

NISA Countdown

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

Cash NISA need-to-knows

1 Cash ISAs are now NISAs with £15,000 limit

You've probably heard of cash ISAs, but they don't exist anymore.

For years we've said your money is nicer in an ISA as you can take advantage of the tax relief. But then the Government decided to overhaul and rename ISAs to NISAs (New ISAs).

Yet, apart from a few technical details (and the name change), they look the same. The biggest change is that you can now put more money in - up from the previous £5,940 cash ISA limit.

2 Cash NISAs are NOT complicated

Everyone in the UK over 16 has a £15,000 cash NISA allowance. The allowance can be used to max out your cash NISA or stocks & shares NISA - 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'll now 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.

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 NISA", 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 NISA 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 NISAs. If it ain't broke, don't fix it, so here come the cakes...

A potential ISA scenario

Quick Q&A on NISA 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 NISAs can you have?

Can I split between a fixed and easy access NISA?

Is my money safe in an NISA?

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

The gain is simple. In a cash NISA, 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, NISAs 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 NISA stays tax-free YEAR AFTER YEAR

Cash in a NISA 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 NISA 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 (N)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 (N)ISAs to the new best buy NISAs - and if you've got serious cash saved in them, this can make a massive difference.

Check rates on (N)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 (N)ISAs into one new shiny NISA. This makes it much easier to transfer again in the future.

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

6 Earn 5% on NISA money now

NISA 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 NISA 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 NISAs, 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.
- 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 a NISA guarantees tax-free status on that cash for as long as it's kept in a NISA. 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 NISA, do this now rather than using your ISA allowance. See Current Accounts for the full options.

Then, use the cash to open a NISA in March 2015. A week before the tax year ends, move the cash out of the bank account to fill your NISA allowance. That way you get the short-term high rate from the banks, but you still get the tax-free benefit of your NISA 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 NISAs - best if you know you'll need access

Easy-access cash NISAs 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, 2.33% AER* Top rate for regular savings and easy access

  • Rate: 2.33% variable AER
  • Monthly deposit: £0 - £1,250 (min £1 to operate)
  • Interest paid: Annually
  • Allows previous NISA transfers? No
  • Withdrawals: Unlimited
  • Access: Online or branch
  • Safety: Shared £85,000 UK protection

The Nationwide* Regular Saver NISA is a top-paying account for those who are starting saving. It pays a high rate of 2.33% AER until April 2015, but is only designed for those who have less than £1,250/mth to put away.

The high rate is attractive, but if you’ve more than £1,250 as a lump sum, you’re better off opening the BM Savings ISA Extra below which pays 1.55% AER on all your NISA cash. So if you’re planning on using the full £15,000 allowance, the BM Savings NISA will give you about £55 extra in interest compared to if you drip-fed it into this account over the next nine months.

But if you don’t have a large amount to save, you could whack it in this account now as a lump sum and effectively use it as an easy-access account - there's no requirement for you to pay in every month and you can make unlimited penalty-free withdrawals. But remember, once you take cash out, you can't put it back in.

Existing customers can apply online, new customers will need to go to a branch.

In April, the account reverts to Nationwide's Instant NISA Saver, which currently pays 1.5% AER. Keep an eye on the rate and ditch and transfer if it can be beaten.

Want to split your 2014/15 allowance?

BM Savings

BM Savings*, 1.55% AER incl 1.05% bonus for a year. Apply online or by phone.

  • Rate: 1.55% AER incl 1.05% bonus for a year
  • Min deposit: £1
  • Interest paid: Annually or monthly
  • Allows previous (N)ISA transfers? Yes
  • Transfer out penalties? No
  • Access: Postal
  • Safety: Shared £85,000 UK protection

The new top paying ISA Extra account from BM Savings* pays a decent 1.55% AER rate which includes a 1.05% bonus for a year. You only need £1 to open the account and you can transfer in previous years' (N)ISAs.

You can deposit your annual £15,000 NISA limit throughout the tax year and you can make unlimited withdrawals. Though 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 2015. The account can be opened online or by phone, though once opened it can be only be accessed by post.

After the first year, you lose the bonus, so the rate will drop, meaning the account can probably be beaten - so compare NISAs when this happens and transfer to another higher paying account once the rate drops. You can chose to have your interest to be paid annually or monthly.

Nationwide

Kent Reliance, 1.55% AER For old and new NISA cash. Apply online or in branch.

  • Rate: 1.55% variable AER
  • Min deposit: £1
  • Interest paid: Annually or monthly
  • Allows previous ISA transfers? Yes
  • Transfer out penalties? No
  • Access: Postal
  • Safety: Shared £85,000 UK protection

The Kent Reliance Cash NISA pays the same rate as BM Savings, but doesn't have a bonus, meaning that the interest rate could drop at any time.

Kent Reliance is one of the NISA providers who allow you to split your ISA allowance between its variable and fixed rate products (provided you don't exceed the £15,000 limit is deposits between your NISAs. It currently has decent one and two year fixed rate NISAs.

The account can be opened online, by post, or in branches. But if you've an online or postal account, you'll need to make any withdrawals by post. Open in branches, and you can withdraw via cash, BACS, Faster Payment or cheque.

The interest rate is variable, so keep checking the account - if the rate drops, transfer out to a better-paying NISA. You can make unlimited withdrawals from the account, but once you've maxed out your cash NISA limit, you can't put any money back in.

Halifax

Halifax, 1.5% AER* For old and new NISA cash. Apply online.

  • Rate: 1.5% AER incl 1.25% bonus for a year
  • Min deposit: £1
  • Interest paid: Annually on 5 April
  • Allows previous ISA transfers? Yes
  • Transfer out penalties? No
  • Access: Online
  • Safety: Shared £85,000 UK protection

If you're looking for a rate that is unlikely to drop in the near future, the Halifax* NISA Saver Online pays 1.5% AER, including a 1.25% bonus for 12 months, which effectively guarantees the rate for that time.

You can save from £1 and it also allows transfers in of previous years' NISA cash. After 12 months the rate will drop to 0.25%, so make sure you're on the ball to transfer your ISA then.

It's an online-only account and interest is paid annually on 5 April.

Other important options to check

  • Boost the rate if you’ve a Nationwide bank account. FlexDirect, FlexPlus or (some) FlexAccount current account holders can get Nationwide's Flexclusive NISA (issue 7). It pays 1.75% AER from £1 but doesn't allow transfers in. If you want to transfer in previous years' ISA's see the Nationwide NISA above.

    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 NISA, 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 credit unions now offer NISAs. For example, Voyager Alliance Credit Union (you must work in transport) has a 2% NISA. Check the Credit Unions guide for more options, and how to find your local credit union.

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

Usually, fixed-rate savings are designed to lock money away for a set period. But by law, cash NISA 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 NISAs, use the MoneySupermarket* comparison (select cash NISAs 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
2.85% (min £100) Until 1 Sept 2019 No 25% is penalty free, 365 days' interest after 0% (3) 1.43% (3) 1.9% (3) 2.14% (3) 2.85% (3)
2.75% (min £1) Until 31 May 2018 No 120 days' interest (1) 1.85% 2.3% 2.45% 2.75% -
(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 the first 25%, 365-day penalty is applied to the remaining closing balance. If only 25% of the capital is withdrawn over five years, you'll get 2.85%.

In summary, Coventry is best for one to two years, beating other fixes even if you close the account before the set term. However, if you are only planning to withdraw a small amount - Leeds wins, as there's no penalty on the first 25% withdrawn. So if you've deposited the full £15,000 with Leeds BS you can withdraw up to £3,750 without a penalty. But withdraw any more than this, then Leeds isn't a good option.

Both Coventry and Leeds don't allow transfers though - so if you want a shorter fix on old (N)ISAs, Virgin is a good alternative paying a higher rate even if you close it after three years.

A new tax year means a big new NISA 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
NISA Savings Calculator.

Top ethical cash NISAs: Earn up to 2.85% 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

NISA 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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NISA 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 NISA video below, suggest a question in the forum.

Moving your ISA

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

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

Can I transfer my NISA to someone else?

Alternatives to NISAs

Is it even worth saving in a NISA as rates are so low?

Should I offset my mortgage instead of putting cash into a NISA?

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

Cash NISAs vs premium bonds - what's best?

Using and accessing your NISA

Can I open a joint NISA with my partner?

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

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

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 NISA, do I then pay tax on it at my usual rate?

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

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

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