ISAs v Current Accounts

25th March 2014

As current accounts take centre stage with market leading rates on offer for savers, we’re regularly asked the question as to how these compare. And should savers be looking to current accounts rather than investing in an ISA, as we approach the end of the tax year.

These are always hard questions to answer. Even with more and more of these high interest current accounts becoming available, it’s still important for savers not to forgo their ISA allowance. The reason we believe this, is that over the longer term building up a large tax free savings account could be very valuable, especially when interest rates start to recover.  And now that savers will soon be able to set aside up £15,000 a year in cash ISAs this lump sum could build to something substantial over time.

That said we can’t ignore the rates on offer. At the end of this month, TSB will be launching another really competitive high interest paying current account. The TSB Plus account will pay a whopping 5% but this is only on balances of up to £2,000.

It’s all about having a balanced portfolio whether that’s cash or investments and perhaps ISAs and current accounts should feature for those lucky enough to be able to take advantage of both.

If you’re looking to maximise your interest here’s a run-down of the best of both.

Cash ISAs

The key providers have launched their offerings for the ISA season and as expected, the results have been underwhelming.

Santander has launched a market leading 2 year fixed rate ISA at 2.30% AER, but only for those who already have or open a 123 current account or credit card and for Santander Select customers.

Halifax launched a range of fixed rate ISAs, including a market leading 2.25% for 3 years, only to see Nationwide shout ‘snap’ and launch matching rates. Unfortunately, this is as far as competition among the key providers has gone this ISA season.

So, with only 2 weeks to go until the new tax year, we have selected the best ISAs available on the market.

Variable Rate ISA Best Buys

Provider/Account Name

Interest Rate

(tax free/AER)

Hanley Economic Cash ISA 60 Day Notice

1.85%

Earl Shilton Cash ISA – 90 Day Notice

1.80%

Nationwide Flexclusive ISA Issue 7

1.75%

National Counties 3rd Issue 45 Day Notice Cash ISA

1.65%*

Santander Direct ISA Saver Issue 6

1.60%

* rate is based on £3,000 invested, higher rates are available for higher balances.

Click here for more information

Fixed Rate ISA Best Buys

Provider/Account Name

Interest Rate

(tax free/AER)

Skipton 5 Year Fixed Rate Cash ISA

3.00%

Coventry Fixed Rate ISA (20) 30.11.2017

2.75%

Santander 123 2 Year Fixed Rate ISA

2.30%

Nationwide/Halifax 3 Year Fixed Rate ISA

2.25%

Nationwide/Halifax 2 Year Fixed Rate ISA

2.05%

National Counties 11th Issue Fixed Rate Cash ISA

1.76%

Click here for more information

 

High Interest Current Accounts

Getting the best returns depends on how much you have in savings; you can use the table below to see which accounts are best for you. Click on any of the provider names to find out more.

 

Provider

AER
Rate

Accounts
Per Person

Deposit Per
Account

Do I Need to Switch My Current Account?

Nationwide BS

5%*

2***

£2,500

No, just deposit and immediately withdraw £1,000 per month.**

TSB (Plus account not launching until 30/03/2014)

5%

4***

£2,000

No, just deposit and immediately withdraw £500 per month.**

Clydesdale Bank

4%*

2***

£3,000

No, just deposit and immediately withdraw £1,000 per month.**

Santander

3%

2***

£20,000

No, just deposit and immediately withdraw £500 per month, and setup 2 Direct Debits.**

Bank of Scotland

3%

3

£5,000

No, just deposit and immediately withdraw £1,000 per month.**

Lloyds

3%

3

£5,000

No, just deposit and immediately withdraw £1,000 per month.**

Overall Rate

3.36%

16 Accounts

Maximum Balance £89,000

 

*The Nationwide account includes a bonus of 3.89% for 12 months.  The Clydesdale account includes a bonus of 1.95% paid until 31/05/2015. To ensure you are aware of rate changes to these and your other accounts you can use our free market leading Rate Tracker service.

**Setting up standing orders is an easy way to ensure you deposit and withdraw the qualifying amounts each month. These can be usually set up in under a minute online or in branch. The monthly deposit must be from a different account provider.

***The second account must be a joint account. For the TSB Plus account the third and fourth accounts must be joint accounts.

Using the table above you may be able to open a total of 16 accounts and get an overall rate of 3.36% AER on deposits totalling £89,000. However, you should be aware that opening a current account can leave a footprint on your credit score and opening multiple accounts, even with the same provider can be a bit labour intensive.

 

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