🔔 Full Blown ISA Rate War

Author: Dan Darragh
09th March 2012

Things are hotting up in the ISA market as providers battle it out for the best paying cash ISA available.  

As mentioned in our recent ISA article (ISA season in full swing) some of the better known cash ISA providers have chosen different routes this ISA season.  For example Barclays seems to be taking a back seat with its offering of 3.05% AER (for existing customers only), leaving it at the bottom end of the variable rate best buys and unlikely to battle it out with its competitors and Halifax looks to be moving its focus to its Junior ISA which offers up to 6%.

However things have truly started to heat up with a full blown ISA rate war in full swing. 

The key players this ISA season had been Cheshire Building Society (owned by Nationwide) and Santander who have both held a market leading rate for a mere three days each.  Then today along comes the AA (owned by Lloyds TSB), who right at the last minute swoops in with a rate head and shoulders above the rest.  But is everything as good as it seems?

Santander launched its 2 Year fixed rate Major ISA (cash ISA) on Monday paying 4% AER, with a 0.10% bonus if Rory McIlroy wins an eligible golf major! A marketing gimmick if ever we saw one, but a fun one all the same.  They also added a market leading 1 year fixed rate Cash ISA to their range, paying 3.50% AER. 

Along with the fixed rates ISAs, Santander also launched a variable rate cash ISA, Direct ISA Issue 9, which pays 3.30% AER.  Direct ISA offers easy access for withdrawals but comes with a hefty 2.80% bonus for the first 12 months. The best bit of news however is that all of the Santander ISAs mentioned allow transfers in from previous ISA subscriptions.

Not to be outdone by Santander, Cheshire Building Society (owned by Nationwide) increased the rate on its Direct Cash ISA yesterday, going from 3.16% to 3.35% AER, having previously increased the rate from 3.06% AER (last Friday) in order to make it the best buy variable rate cash ISA. But that was just for three days. Until Santander came along. The account is available on a minimum of £1 and withdrawals are available without notice or penalty, but the rate does come with a bonus of 2.35% until 30 September 2013.  

Cheshire also launched a new fixed rate cash ISA yesterday, Direct Fixed Rate ISA issue 3, with a rate of 4.05% tax free (4.00% AER).  The account is fixed for 18 months and is available on a minimum of £1,000 up to the maximum allowance of £5,340, so unlike Santander this account (and the account mentioned above) doesn’t allow transfers in.   

And just as it seemed like Cheshire Building Society would make it to the final hurdle (or at least until the end of the week) with the best paying variable rate ISA up pops the AA (owned by Lloyds) with its Internet Access ISA issue 3.  The account pays a cracking rate of 3.50% but comes with a WHOPPING bonus of 3% for the first 12 months.  The account is available on a minimum of £2,500, withdrawals are available without notice or penalty and it’s only available via the internet. Like Cheshire Building Society it doesn’t allow transfers in.

This account, like many best buys, is one of the reasons we set up SavingsChampion.co.uk.  With bonuses this big, they form such a large part of the interest rate earned that when they fall away, the interest you earn simply disappears.  It’s essential that you keep a track on what interest rate you’re earning so don’t forget to add your accounts to your Rate Tracker portfolio and let us do the hard work for you!

Competition in the market means one thing, great news for customers, so we’re calling on Cheshire and Santander to fight back, don’t take this lying down, increase those rates to beat the AA, come on, you know you want to!