Instant access savings accounts should be a vital part of anyone's savings plan. They're ideal for fledgling savers who are unsure how much they can commit to their pot, as well as being an essential home for an emergency fund, whose very nature means you may need quick access to your money. But one question remains – should you opt for a traditional easy access account, or a cash ISA alternative?
We've taken a look at the figures, but all may not be as it seems. For example, the data shows that the average no notice rate paid across the non-ISA market (based on a £10,000 savings pot) is just 0.38%, whereas the ISA equivalent clocks in at a significantly higher 0.63%. So does this mean that cash ISAs are your best bet? Well, not necessarily!
It's important to point out that there are far more non-ISA deals than there are ISAs, which affects the average return considerably – among the hundreds of non-ISA instant access accounts, many pay paltry rates of interest which drag the overall average down. However, there are many others that pay vastly superior rates to their ISA counterparts, which is why it's often better to look at the savings Best Buys, rather than averages alone.
This is where traditional accounts really come into their own. Check out the best easy access savings accounts and you'll see that non-ISA versions easily lead the way: several deals pay above 1%, whereas in the cash ISA sector only two can do the same, and barely at that.
"It would be beneficial for savers to make the most of any Personal Savings Allowance (PSA) for non-ISAs," said Rachel Springall, finance expert at Moneyfacts. "Savings rates are typically more competitive away from ISAs, and with basic rate taxpayers getting the first £1,000 interest earned free of tax (£500 for higher rate taxpayers), it's going to be rare for anyone to breach that limit, particularly with current rates.
"There is some optimism back in the Best Buys, too, with new market-leaders emerging in almost every sector over the past couple of months. These spotlight positions are held by challenger banks and mutuals that are consistently offering better deals than the high street banks. When savers can earn as little as 0.01% on an easy access account from a high street provider (NatWest, for example), it's clear to see why a Best Buy rate of 1.10% is exceedingly more attractive."
This market-leading rate can be found on accounts from RCI Bank, Britannia and Yorkshire Building Society, the latter of which includes a guaranteed bonus of 0.50% for 12 months. We recently discussed that online savings accounts pay better rates than those that can be opened by other means, and this is particularly the case in the easy access sector: three of the top five instant access accounts can only be opened online and a fourth can only be managed in this way, so it makes sense to get in on the online action.
However, that's not to say that you should turn your back on cash ISAs completely. They still have their place, namely for the fact that the returns will remain tax-free for life, no matter what happens to PSA rules or savings rates in the future, nor how big your ISA pot gets.
This is why you still need to make sure you're getting the best deal possible, particularly if you've got several years' worth of ISA savings squirreled away. As Rachel points out, "it's important to consider transferring poor ISAs to something better and not encash them by mistake so that they don't lose their tax-free wrapper," so start the process by comparing the best cash ISAs and remember to follow transfer rules to the letter.
You may want to look to fixed rate ISAs to get the best returns – as long as you keep enough cash in an easy access alternative, it makes sense to mix things up a bit, as you can secure far better rates by keeping your money locked away. You may even want to consider stocks & shares ISAs if you're comfortable with extra risk.
So, the moral of the story? Traditional instant access savings accounts may be better than their ISA counterparts, but there should be room in your savings portfolio for both!
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.