Santander is launching a new wave of best buy cash Isa deals, including an easy-to-access account that pays 1.85%… but there’s a catch
- Santander’s easily accessible deal is 0.1 percentage points higher than the second best
- After the first year, however, the interest rate for savers drops to 0.1%.
- Its one-year cash pays Isa 3% — 0.35 percentage points higher than the next best
No sooner have we announced a new best-buy cash Isa than another one seems to jump up our savings interest rankings and claim the number one spot.
Santander has grabbed the limelight in the tax-free savings space this time by launching a new easy-to-access Isa cash that pays 1.85 percent interest.
Someone able to put the maximum annual Isa allowance of £20,000 into Santander’s deal could expect a return of £373 after a year.
Note: After the first 12 months, savers’ money is transferred from the lucrative eIsa to Santander’s Isa Saver account, which currently pays 0.1 percent.
It replaces Gatehouse Bank, which launched a deal earlier this week with a 1.75 percent payment.
Santander has also launched a market-leading one-year Isa contract at a fixed rate of 3 percent and a two-year contract at 3.25 percent.
Savers can get started from as little as 500 euros and it is also possible to transfer Isa from other providers at any time.
As the Easy Access account is a new edition of Santander’s eIsa account, existing customers who have signed up for previous editions, such as B. Issue 14, which was paid 1.5 percent, will not automatically increase its rate.
Savers also need to be aware of a major downside. After the first 12 months, their money is transferred from the lucrative eIsa to Santander’s Isa Saver account, which currently pays 0.1 percent.
They must therefore revise their options at the end of the first year and transfer their money to a new provider.
Those willing to give up their cash for a year or more in return for higher interest rates might prefer Santander’s fixed-rate Isa offerings.
However, due to their tax-free status, fixed cash Isa rates tend to pay far less than their non-Isa equivalents. The second-best fixed-rate, one-year Isa deal pays 2.65 percent, compared to the top taxable fixed-rate deal, which pays 3.4 percent.
|Type of account (minimum investment)||price (tax free)|
|Santander (from £500)||3.00|
|Leeds BS (over £1,000)||2.65|
|Safe Trust (£1,000+)||2.65|
|Santander (from £500)||3.10|
|Skipton BS (over £10,000)||2.75|
|Santander (from £500)||3.25|
|Hodge Bank (£1,000+)||3.17|
However, Santander has closed this gap by introducing its 3 percent one-year cash Isa. Someone who deposits £20,000 into this account could secure £608 in interest.
Once again, this deal can be opened with as little as £500. However, unlike the Easy Access option, once engaged savers cannot withdraw funds from this account unless they close it. If the account is closed early, interest will be charged for 120 days.
Those wishing to transfer isas from other providers must do so within 14 days of opening.
Savers who prefer to lock away longer can secure 3.25 percent interest at Santander by fixing for two years.
Someone who deposits £20,000 into this account could earn £1,341 in interest over the two years.
It’s also worth noting that Santander also offers a market-leading 18-month cash Isa deal that pays out 3.1 percent.
Cash Isa or savings account: which is better?
Interest rates on savings have risen this year, meaning an increasing number of savers could face tax on the interest they earn.
However, those who save into a cash Isa will shield any interest they earn from the IRS.
Outside of a tax-free Isa, all interest earned on savings accounts continues to be tax-free up to a certain amount. The reason for this is the personal savings allowance introduced in 2016.
This allowance means taxable property tax savers pay no tax on the first £1,000 in interest they earn.
Savers in the higher tax bracket get protection up to £500, but taxpayers with the additional rate have no such allowance.
While the tax-free element should be a consideration for those looking for a new place to stash their savings, the prices on offer for the best Isa cash deals are significantly less generous than the best non-Isa equivalents.
The best accessible standard savings offer pays 2.1 per cent – 0.25 percentage points more than Santander’s market-leading cash Isa rate.
After the Personal Savings Allowance, a base rate taxpayer saving under the 2.1 percent non-tax-exempt easy access offering would yield essentially 1.68 percent after-tax interest. That’s 0.17 percentage points less than if it were held in Santander’s Cash Isa.
Cash ISAs will likely be a better option for higher-rate taxpayers, as the effective rate for the best standard easy-access deal is reduced to 1.26 percent after tax.
For those who want a one-year fixed account, the best standard savings account pays 3.4 percent interest compared to the best cash Isa rate of 3 percent for one year: a gap of 0.4 percentage points.
After the personal savings deduction, a base rate taxpayer saving into the best standard one-year deal would earn an after-tax effective interest rate of 2.72 percent — that’s 0.28 percentage points less than the best deal with a tax-free wrapper.
For a taxpayer with a higher tax rate, his after-tax rate would effectively reduce to 2.04. This is almost 1 percentage point less than Santander.