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ISAs – Don’t Be Blinded by the Headline Rate

ISAs – Don’t Be Blinded by the Headline Rate

Category: Savings

Updated: 31/10/2008
First Published: 22/03/2006

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Andrew Hagger Head of News and Press at highlights the importance of checking the small print to ensure you make the most of your £3,000 mini cash ISA allowance

With just a couple of weeks left in the 2005/06-tax year, banks and building societies have been falling over themselves in an attempt to get a decent slice of the potentially huge ISA market.

With around 30 new or revamped mini cash ISA products appearing on the market since the beginning of February, there is a massive choice for consumers when it comes to deciding where to deposit their tax free savings.

If previous years are anything to go by, many of the top rates may only be around for a matter of a few weeks, so you’ll need to be quick off the mark if you want to bag yourself one of the better deals.

However, although a speedy decision may be required, especially to meet the deadline for the current tax year, savers shouldn’t rush to sign up for an ISA just because it is offering a headline interest rate as this could prove an expensive mistake.

As with any personal finance product, the secret is to weigh up what your own needs are and to make your selection on that basis.

If you look at some of the mini cash ISA products around at the moment, you may be tempted to plump for the Scarborough BS which offers a gross rate of 5.05%, but if you read the small print, you will find that this is an account that has a fixed term until March 2009, and if you needed to transfer your funds out before this date, you would lose the equivalent of four months’ interest.

There is a similar fixed tem cash ISA on offer from the Britannia BS offering 5.00% gross, where you are tied in until April 2007 and would lose a hefty six months’ interest for closure before this date. This highlights the importance of checking those boring terms and conditions.

Another catch to be wary of is short term bonuses included within interest rates; for example Saffron Walden BS has a mini cash tracker ISA offering 5.30% gross, which on the face of it looks a great deal. However you need to be aware of the conditions attached to this offer, i.e. the account can only operated by post, the rate includes a 0.8% bonus for the first six months only, before reverting to bank base rate, and transfers out are subject to 30 days’ notice or loss of interest plus a £30 fee.

It is the usual scenario that if you are happy to tie your money up for a longer term, then you’ll be rewarded with a better return, but if you’re someone looking for a straightforward, no-nonsense mini cash ISA then the ISA Saver direct from Halifax paying 5% gross or the Instant Access ISA from Abbey 4.60% (with cashcard for easy access) are both well worth a look.

Disclaimer: 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.