Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

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Importance of reviewing your Cash ISAs

Following recent press coverage of Barclays' decision last month to move 2.3 million savers to a new cash ISA product – with two-thirds of these customers now finding that they are on a worse rate than before – savers are again reminded of the importance of ensuring they are getting the very best deals on their cash ISAs. And Barclays is by no means alone. In the last year RBS, HSBC and Natwest have all either moved millions of customers to a new deal or withdrawn accounts offering special introductory bonus rates.

With interest rates still at historically low levels it can be easy to dismiss a relatively small difference in the rates as insignificant, but a 1% variance in the interest rate on a deposit account worth £20,000 is equal to more than £1,000 in interest when compounded over five years.

So what options are available to ISA savers in low-rate accounts?

1) Switch to an alternative variable Cash ISA account

There are a number of websites - including our own - which provide a list of the best ISA rates currently available. Most cash ISAs are 'variable rate', meaning the rate received will change depending on the current Bank of England base rate and providers' discretion. Many of these accounts may include bonus periods after which the interest rates may be lowered.

We have also provided an Annual Gross Equivalent Rate which annualises the tax benefits and compounded growth on income earned over the term of the investment.

Cash ISA

AER

As of

Notice

Min Deposit

Introductory Bonus

Gross Equivalent rate 20% income tax

Gross Equivalent rate 40% income tax

Coventry BS: Branch Instant ISA

2.00% 05/09/2014

Instant

£1

N/A

2.50%

3.33%

BM Savings: ISA Extra Issue 11

1.55% 05/09/2014

None

£1

1.05% bonus for 12 months

1.94%

2.58%

National Savings & Investments: Direct ISA

1.50% 05/09/2014

None

£1

N/A

1.88%

2.50%

Skipton BS: Online Bonus Cash ISA 3

1.50% 05/09/2014

None

£1

1.05% bonus for 12 months

1.88%

2.50%

2) Switch to a Fixed Rate Cash ISA account

If you are prepared to lock-in your money for a period of time then a Fixed Rate account might be a better option, as the rates on offer normally beat those offered by variable accounts.

Cash ISA

AER

As of

Term

Min Deposit

Introductory Bonus

Gross Equivalent rate 20% income tax

Gross Equivalent rate 40% income tax

Tesco Bank: Fixed Rate Cash ISA

1.65% 05/09/2014

1yr

£1

Fixed

2.06%

2.75%

Metro Bank: 1 Year Fixed Rate Cash ISA Issue 8

1.50% 05/09/2014

1yr

£1

Fixed

1.88%

2.50%

Buckinghamshire BS: 1 Year Fixed Rate Cash ISA issue 50

1.25% 05/09/2014

1yr

£100

Fixed

1.56%

2.08%

Santander: Direct ISA Saver (Issue 8) 1.00% 05/09/2014 1yr £500 Fixed 1.25% 1.67%
Principality BS: 2 Year Fixed Rate Cash ISA Issue 127 1.85% 05/09/2014 2yr £500 Fixed 2.31% 3.08%
Saffron BS: 2 Year Fixed Term, Fixed Rate Members' Cash NISA 1.85% 05/09/2014 2yr £500 Fixed 2.31% 3.08%
Metro Bank: 2 Year Fixed Rate Cash ISA Issue 3 1.75% 05/09/2014 2yr £1 Fixed 2.19% 2.92%
Furness BS: 2 Year Fixed Rate ISA Issue 88 1.70% 05/09/2014 2yr £1,000 Fixed 2.13% 2.83%
Metro Bank: 3 Year Fixed Rate Cash ISA 2.00% 05/09/2014 3yr £1 Fixed 2.50% 3.33%
Furness BS: 3 Year Fixed Rate ISA Issue 89 1.90% 05/09/2014 3yr £1,000 Fixed 2.38% 3.17%
Halifax: 4 Year ISA Saver Fixed 2.10% 05/09/2014 4yr £500 Fixed 2.63% 3.50%
Principality BS: 5 Year Fixed Rate Cash ISA Issue 129 2.75% 05/09/2014 5yr £500 Fixed 3.44% 4.58%
Skipton Building Society: 5 Year Fixed Rate ISA 2.75% 05/09/2014 5yr £500 Fixed 3.44% 4.58%
Metro Bank: 5 Year Fixed Rate Cash ISA 2.25% 05/09/2014 5yr £1 Fixed 2.81% 3.75%

Halifax: 5 Year ISA Saver Fixed

2.20% 05/09/2014

5yr

£500

Fixed

2.75%

3.67%

Source: Bestinvest

Not all accounts accept transfers so it is worth checking with the bank or building society concerned before requesting forms.  You should also check whether your current provider levies any penalties for transferring out. It is important that you initiate any transfer through the new provider, rather than withdraw the money or close the account yourself, to ensure the ISA remains intact.

3) Transfer to an Investment ISA

Since the abolition of the distinction between cash and stocks & shares ISAs, we have seen an increasing number of people look to transfer their cash ISA money into their investment portfolios within the ISA wrapper. Whilst not a reliable indicator of future returns, with the dividend yield on the FTSE 100 and average redemption yields on investment-grade corporate bonds currently being strong, the current returns on offer can be appealing to those who are willing to accept some risk to the capital values. We will be happy to help with any transfer you may wish to make into an investment ISA through Bestinvest.

An ISA is a valuable wrapper and it’s important that savers make the most of the tax efficiency by achieving the best returns they can. If you would like to discuss your options further please do contact your usual adviser or our client services team on 020 7189 9999.

Important information

This article is not advice to invest, or to use any of our services. The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

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