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Top paying one-year ISA offers 4% AND allows access to cash

Paloma Kubiak
Written By:
Paloma Kubiak

Barclays has launched a market-leading one-year ISA paying 4% which also allows savers to make three penalty-free withdrawals.

The Barclays one-year Flexible Cash ISA (issue 36) has a fixed rate of 4% AER tax-free on balances of £1+. Based on a £1,000 deposit, this would earn £40 in interest over the year.

There are a number of pluses to this account, in addition to its market-leading rate, which is far higher than the next best at 3.81% (UBL).

As well as allowing existing ISA transfers (must be received within 30 calendar days from account opening date), it also allows savers to make three penalty-free withdrawals in the 12-month period.

While these are capped at 10% of your balance at the time a withdrawal is made, it offers savers access to their cash despite it being a fixed rate product. By comparison, next best UBL (3.8%) allows access on closure.

Further, the ISA is flexible, meaning any funds withdrawn from this ISA can be replaced in the same tax year without counting towards the annual ISA allowance (currently £20,000).

The account can be closed or cash transferred out before the maturity date which results in a charge equivalent to 90 days’ tax-free interest based on the balance at the time.

Challenge to open for new customers

However, on the downside unless you are an existing Barclays customer you’ll need to go into a branch to open the ISA. The account cannot be opened online or over the phone by new customers.

This is because you’ll need to provide proof of identification and your address over the last three years. This can’t be done online.

YourMoney.com has asked if there is a virtual way for customers to provide the relevant documents.

The problem here is that Barclays branches are closing at pace – 11 have been earmarked for closure between February and March 2023, on top of the 121 branches which already closed in 2022, according to Link data.

Savers may struggle to visit their ‘local’ branch, and YourMoney.com also found that branches may have limited or closed counter services particularly on weekends in order to open the ISA. Check ahead before making a special trip.

Another point to note is that if you’re looking to transfer more than £5,000 into the new ISA, Barclays requires proof of these funds as part of its anti-money laundering regulations so it may be an idea to take a recent ISA statement with you.

Elsewhere, savers will be given the option of having interest paid monthly or at the end of the term. Barclays explained that if you choose monthly interest, this will be paid to you each month and won’t be added to your cash ISA balance. If you choose end-of-term interest, this will be compounded and added to your balance at maturity.

In the run up to maturity, Barclays will contact you to set out options. If you don’t do anything, the cash ISA will convert into a variable rate cash ISA. Your account number and sort code will not change.

The Barclays ISA was only launched yesterday and we’ve asked it whether there is a subscription limit by customer number or deposit value; we’ll update this article once we hear back.

For existing Barclays customers, you can apply online, via the app and over the phone.

‘Unusual to see high street provider in the best buy tables’

Anna Bowes, co-founder of Savings Champion, said: “This is a really good rate (the two-year is also very good paying 4.10% compared to the top rate from Virgin 4.11%) and it’s unusual to see a high street provider in the best buy tables, never mind at the top of them.

“That said we have seen a few of the high street banks making an appearance recently. Clearly there is a good need for them to raise money from savers to fund their lending requirements.

“To add to the top rates, these ISAs allow some penalty-free access, which could be useful at a time when circumstances could change quickly.

“This is the highest rate we’ve seen for a very long time, so it could well be fully subscribed rapidly.”