New £20,000 Isa allowance – where to find the best savings rates

Isa-form-with-pound-coin

Cash Isa rates are edging up, but overall remain below those you can earn on taxable accounts.

Metro Bank has launched a one-year fixed rate cash Isa at 1.25 per cent. The top two-year deal is 1.5 per cent from BM Savings, where the deposit taker is Halifax. On easy-access cash Isas you can earn 1.05 per cent with the new Limited Edition Easy Access Cash Isa from Paragon Bank.

On taxable deals, the top easy-access rate comes from Ulster Bank at 1.25 per cent on its e-Savings account, followed by Shawbrook Bank and French-owned RCI Bank, both at 1.2 per cent.

The top deal on taxable fixed-rate bonds for one year is 1.95 per cent from Atom Bank, followed by Shawbrook Bank at 1.8 per cent.  For two years you can earn 2.1 per cent with Atom Bank or 2.05 per cent from Paragon and Shawbrook banks.
 
 - Don't be caught out by this savings trap

New banks are behind a flurry of rises on both easy-access accounts and fixed rate bonds, but savers need to be quick to catch them, as some only last for a few days. 

Earlier this month Bank of Cyprus UK upped the rate on its Online Easy Access Account to 1.3 per cent for new savers, but the deal was on offer for just three days before the rate dropped to 1.2 per cent.

Meanwhile Shawbrook Bank, Paragon Bank, RCI Bank and Ford Money upped the rates on their easy-access accounts while Ulster Bank pays a top 1.25 per cent on its e-Savings.

With the exception of Bank of Cyprus UK, none of these top deals come with an initial bonus, so you won’t necessarily have to seek out a better paying account after 12 months.

Some providers pay over 1 per cent but the rate drops dramatically after the first year.  For example, Tesco Bank Online Saver pays 1.16 per cent but the rate drops to 0.4 per cent after a year when the initial bonus disappears. The Bank of Cyprus UK rate halves to 0.6 per cent.

There has also been vigorous competition on fixed rate bonds. Rates change often here too with new bank PCF, launched in July, changing its rates three times in just four weeks. Last month the top one-year rate of 1.9 per from Shawbrook lasted for just over two weeks before being replaced with a lower rate. 

- National Savings and Investments launches market-leading 2.2 savings bonds

These new banks, which offer accounts over the internet, can fine-tune their rates quickly to make sure they do not attract too much. When they want funds, they jostle with each other for top place. Then, as soon as they hit their target amount, they cut the rate and drop down the league table. 

Kevin Mountford, chief executive officer of PBF Solutions, which helps new banks raise money from savers, says: ‘ New and overseas banks have helped to provide a much- needed boost to the UK savings market. The increased competition has pushed rates to an artificially high level at a time when clearly the banks need inflow from savers.  But they need to make sure they don’t bring in too much money as this is costly for them. Some offers don't last long, so grab them whilst you can.’      

How to beat inflation

To beat inflation, currently running at 2.6 per cent, compromises need to be made as all of the small number of regular savings accounts that pay more than inflation require savers to have a current account with the provider. Our sister publication Moneywise regularly keeps tabs on the savings market and has found there are nine accounts that currently beat inflation.

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