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 In the last year RBS, HSBC and Natwest have all either moved millions of customers to a new deal or withdrawn accounts offering special introductory bonus rates.

Written by Sam Coppin

Published on 09 Sep 20144 minute read

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.