Santander kicks off Isa rate war

The Spanish giant is offering at least 3.15% interest on its Flexible Isa (issue 3) with easy access for a year, open to anyone (see the Cash Isas guide).

Savers are guaranteed to beat the base rate (currently 0.5%) by 2.65 percentage points for 12 months, meaning returns could rise if, as many economists expect, the official Bank of England rate rises this year.

At 3.15%, Santander pays 0.27 of a percentage point more than the next best deal that is openly available.

Santander current account, mortgage or investment holders will get 3.3% for a year in the Loyalty Flexible Isa (issue 1). They will earn 2.8 percentage points more than the base rate during that period.

The rate on both accounts will drop to the base rate after a year.

Neither allow transfers from old Isas but anyone who opened the Loyalty Flexible ISA issue 1 or Flexible Isa issue 3 that were launched in October 2010 will benefit from the new rate immediately.

However, the 12-month guarantee will begin from the date they originally opened their account. They were earning 3% and 2.85%, respectively.

Don't miss the Isa deadline

Every adult can save £5,100 during the current financial year in a cash Isa, which is a normal account other than the fact interest is not taxed.

The overall Isa limit, including cash and investments, is £10,200. To use this year's allowance you must apply by 5 April or you will lose it forever.

Before plumping for the Santander account, consider other providers that tend to offer top Isa rates close to the deadline such as Barclays and Halifax have yet to reveal their deals.

Other providers have recently launched top-paying fixed rate Isas, where the return is guaranteed for the term of the account, though there are huge penalties for withdrawing early.

However, the fiercest competition tends to be in the more popular easy access market.

Further reading/Key links

Top deals: Cash Isas, Isa Transfers, Full Isa Guide