As the end of the tax year approaches, this is a key time for savers to consider the use of their Individual Savings Account (ISA) allowance.
Even if you have already used your ISA allowance for the current tax year, the new tax year starts on 6th April 2021, which means you have another whole new allowance to make the most of.
In our recent Savings Champion awards, the winner of the prestigious Best Cash ISA Provider Award was Paragon. A relatively new name to the savings landscape although they have been around for some time and are well established. We therefore thought you might be interested to find out some more detail about this Bank and why they were deserved winners in this category.
We have always believed that it is important to recognise those providers that have helped to keep some competition alive in the savings market, offering savers an alternative to leaving their funds languishing with the high street banks.
Paragon deservedly won our award for Best Cash ISA Provider on the basis of being consistently competitive throughout the last 12 months on its varied range of cash ISA accounts.
Not only has Paragon offered best buy rates, it has also offered a number of options that sets it apart from many of its peers, including offering a postal application route for those who prefer it and the ability to open a number of different types of cash ISA from its range within the same tax year.
All in all, competitive rates, a range of options and features that help savers make Paragon a worthy winner of this prestigious accolade.
Background Information – who is Paragon?
Paragon began life as a specialist residential mortgage lender in 1985. A pioneer in buy-to-let lending, in 1995 they launched their first mortgage products for UK landlords in the growing Private Rented Sector achieving a 10% share in the buy-to-let market by 2006.
In 2014 Paragon started to expand from being simply a specialist in residential buy-to-let lending by launching its first savings accounts and it began lending to Small and Medium sized (SME) businesses a year later.
Paragon’s lending is funded by deposits from savings customers, together with wholesale funding. The bank states “We help individuals and small businesses across the UK prosper and grow by focusing on customers in markets typically underserved by larger high street banks. We have a deep understanding of our customers and their markets, designing products to meet their needs and continually striving to exceed their expectations.”
Paragon is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). In addition, Paragon is a member of the Financial Services Compensation Scheme (FSCS), so funds placed with the provider would be covered up to £85,000 per person, should the provider go out of business.
For more information on the FSCS, please take a look at our handy guide or call us on 0800 011 9705 to speak to one of our expert savings advisers.
Where do your savings go when you open an account with Paragon?
As mentioned above, Paragon is well known as a specialist buy-to-let mortgage lender. But it also lends money to small and medium sized businesses covering a wide array of sectors including agriculture, aviation, construction, commercial vehicles and business equipment.
We asked Paragon for examples of businesses they have lent to in 2020 and particularly liked this one that turned their business around to deal with the pandemic.
Hampshire based adhesive specialists, AdCo UK
The bank helped Hampshire-based AdCo UK tackle coronavirus and maintain local jobs, providing a £60,000 funding package to help the company shift production to alcohol hand gel.
AdCo UK Ltd is one of the UK’s leading specialist adhesive manufacturer. As coronavirus cases spread, the company quickly moved to begin production of ‘HydraCure alcohol hand gel’ to help with the fight against coronavirus and serve customers in need, including local authorities and care homes. The demand for the hand gel was so strong that investment in new mixing equipment was needed.
The funding also allowed the company to maintain its 14-strong workforce without the need to furlough any employees. The package was used by the company to purchase raw materials to manufacture the hand gel and the company is now producing 5,000 bottles per day.
Today’s Savings Market
Paragon launched in February 2014 and has regularly appeared in our best buy tables since, not only in the Variable Rate ISA and Fixed Rate ISA tables, but also the Fixed Rate Bond category.
At the moment, Paragon has a Variable Rate Cash ISA which is paying the joint 2nd best rate on the market of 0.40% AER. The Triple Access Cash ISA – Issue 3 is available to open online with a minimum deposit of £1. It allows three penalty free withdrawals a year. If more than this are made in a 12-month period, the rate will drop to 0.25% AER for the remainder of the year.
Paragon also has some closed issues of the Triple Access Cash ISA, both of which are currently still paying the same rate as they were when they were launched. Issue 1 which was a Best Buy account which launched in August last year paying 0.80% AER.
Issue 2 was also a Best Buy account when launched in November last year, paying 0.65% AER.
Both of these accounts are still paying these competitive rates, so could be a good option for this year’s ISA allowance, if you’ve not already used it and you want to have the option of some easy access to your money – as you can top them up if you hold one of these accounts.
Of course we don’t know that these rates will remain at these levels, but while they do, it’s a great way to earn a little extra tax free interest compared to what is available today.
The bank’s Fixed Rate ISAs can be opened online or by post which is appealing to many savers. At the time of writing Paragon sits in 3rd position in the 1-year fixed rate ISA table, paying 0.45% and it sits just outside the top 5 in the 2 Year and 5 Year Fixed Rate ISA tables, paying 0.55% and 0.70% AER respectively.
Paragon introduced the Flexible ISA and what we call the Portfolio ISA facility, known as the ISA Wallet feature at Paragon. The ISA Wallet allows savers to split their allowance across multiple Paragon ISAs without flouting the ‘one cash ISA per tax year’ rule. Whilst ordinarily you can only open one cash ISA per tax year, a small group of providers will allow you to open several different types of cash ISA with them.
Having the Flexible ISA facility means that you can take your money out of an ISA and replace it within the same tax year, without it impacting your ISA allowance – this applies to historic ISAs as well as the one you are saving into for this tax year specifically.
For example, if you have £50,000 in a Flexible ISA, including £5,000 of this year’s allowance, you still have £15,000 that you can add to the ISA within this tax year’s limits. If you need to withdraw £15,000 in the meantime, you will be able to add that back into your Flexible ISA , plus the remainder of this year’s allowance – so up to £30,000 – as long as it is within the same tax year as the withdrawal. In this scenario, if there was no flexible ISA, you could only add the remaining ISA allowance, so £15,000.
A final word…
Paragon’s savings director Derek Sprawling urges savers to make the most of their ISA allowances.
“After the turbulent year that was 2020, we’re now in March and Spring is finally on the horizon. This means a new tax year is nearly upon us.
Even during tough market conditions, it remains essential for savers not to overlook their tax-free savings allowance. In overlooking ISAs this tax year, savers are losing sight of the bigger picture, and the role of tax-free savings in building potential long-term savings.
Even while market rates fluctuate, ISA allowances are designed to build up tax-free savings over a saver’s lifetime, and the yearly allowance is a ‘use it or lose it’ scenario.
While your savings might be earning a lower rate than usual in a cash ISA at the moment, as the Bank of England base rate remains at a historic low, the market will eventually recover. When it does, those savings will remain tax-free and they can be consolidated into another product, or transferred to a stocks and shares ISA.
By not using an ISA allowance because of the current market conditions, savers are missing out on the opportunity to potentially increase their long-term tax-free savings.
There are also other benefits to utilising your ISA allowance. For savers that complete tax returns each year, holding money with ISAs make the process easier as there is no tax to pay on ISA savings while no capital growth or interest needs to be declared either.
ISAs can also be used to build additional retirement income, as you can top it up gradually year after year into a lump sum, and then draw a tax-free income from your ISA pot when it’s time to retire.
We understand that market rates at the moment are challenging, and with ISA rates often lower than non-ISA products, it’s tempting to save the money away from cash ISAs. For this reason, Paragon strives to match rates on their easy access ISAs to those offered on their non-ISA easy access products, so savers can benefit from tax-free savings even in the current market.”
Remember, the end of the tax year falls on the Easter Bank Holiday weekend, so it's important not to leave your ISA decision to the very last minute, or you could miss out.