Interest rates

Cash Isas makes a comeback as interest rates triple

Cash Isas makes a comeback as rates triple: Latest deals put out-of-favor accounts back in the spotlight

Cash Isas are making a comeback after rates more than tripled this year.

Dozens of savers left tax-free accounts when interest rates fell in the wake of the financial crisis.

But they quickly regain their appeal. In recent years, only around one in ten people have paid tax on the interest earned on their savings after the introduction of the Personal Savings Allowance in 2016.

Best deal: Coventry Building Society’s best cash Isa now offers 1.55% vs 1.9% with a regular account – worth 1.52% after tax

This concession from HM Revenue and Customs (HMRC) allows Britain’s 27.2 million basic rate taxpayers to earn up to £1,000 a year in interest on an ordinary account without paying tax. The allowance drops to £500 for Britain’s 5.5 million higher-rate taxpayers.

But rising rates mean savers are likely to eat up their personal savings allowance much faster.

There is evidence that the tide may be starting to turn. There is around £286 billion in cash Isas, the lowest level since May 2019.

And withdrawals are slowing down. Savers withdrew £353million in June, according to the latest figures. This represents a third of the £996m that has been spent in previous months.

Anna Bowes of Savings Champion said: “Cash Isas is coming back into vogue after disappointing savers.”

James Blower, founder of consultancy Savings Guru, adds: “Cash Isas are now definitely worth looking into.

Previously, the savings premium killed the appeal of Isas for most savers. What was the point of saving in tax-free packaging if you are exempt from tax anyway? »

Savers can earn 3.3% with a one-year bond from Investec and Tandem.

This means that once you have £30,250 in the account, you will have exhausted your personal savings allowance of £1,000, or £15,125 for higher rate earners.

On easy access accounts, Al Rayan pays a maximum rate of 1.9%.

You will therefore have exhausted your allowance once you have £52,000 as a base rate payer or £26,000 for a higher rate payer.

The gap between Isa cash rates and what you can earn with a regular account is also narrowing.

In January, Isa, the best easy-to-access cash, paid 0.45%. Today Skipton Building Society best cash Isa is offering 1.6% versus 1.9% with a regular account.

The great Santander has also joined the fray with an easy-to-access cash Isa paying 1.5% for the first 12 months and a one-year fixed contract at 2.3%.

sy.morris@dailymail.co.uk

How to find the best savings rates

Savings rates have been in the doldrums for many years, but the situation has been hugely exacerbated by the pandemic and the drop in the base emergency rate to 0.1%.

But there are ways to make sure your money is at least the best of the bunch at all times.

Checking out the best rates is essential, but it’s also possible to make your life easier overall and manage your pools in one place.

Over the past few years, a number of savings platforms have been launched, offering savers the flexibility to switch as better deals become available and manage accounts from different banks and building societies.

They each work slightly differently and include their own exclusives. To check out what’s on offer, take a look for yourself:

The platforms presented below are independently selected by This is Money’s specialist journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.

> Grape*

> Active Savings Hargreaves Lansdown*

> Slab

Or you can check out the full savings charts of This is Money’s best buys here, independently curated by savings guru Sylvia Morris:

> Compare the best savings rates now

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