ISAs beat savings accounts in easy access rate war
Savers who are reluctant to lock away their cash could earn better returns by opting for an easy access ISA rather than an instant access savings account.
According to financial data firm Moneyfacts, the average easy access ISA currently pays 0.87%, whereas its taxable counterpart pays just 0.50%.
The highest cash ISA rate available at the moment is 1.25% from Melton Mowbray Building Society, while the best easy access savings account is from RCI Bank UK paying 1.20%.
It has been another month of misery for savers, with 285 rate cuts and 20 best buy deals completely withdrawn from the market, according to Moneyfacts, making shopping around for the best rate more important than ever.
However, it seems many savers are staying put in standard savings accounts offered by their bank or building society.
According to Financial Conduct Authority (FCA) estimates, there is £354bn sat in taxable easy access accounts compared with just £108bn in easy access ISAs.
The introduction of the Personal Savings Allowance (PSA) in April, which allows basic rate taxpayers to earn £1,000 tax free or £500 for higher rate tax payers, led some to suggest cash ISAs had become redundant.
However, there are still good reasons to opt for an ISA. As well as the current superior rates, any earnings will be tax free indefinitely.
As Rachel Springall, finance expert at Moneyfacts.co.uk, says: “There is no guarantee the PSA will last forever.”
Spouses and civil partner can also inherit ISA pots tax-free.
There are at least 10 easy access ISAs paying above 0.25%, the Bank of England Base Rate, with only five deals paying 0.25% or below. This compares to a disappointing 55 deals for easy access savings accounts paying below 0.25%.