This April ISAs will celebrate their 20th anniversary, however despite being two decades old, research from Santander shows that almost half the population (45%) still don't know that an ISA allows them to save money without paying tax on their interest. In addition to this, 65% don't know they can put £20,000 into an ISA per tax year and 64% think they need to lock their money away and cannot access the funds.
Many could also be confused over the tax status of traditional savings products, with the Personal Savings Allowance (PSA) allowing basic rate taxpayers to earn £1,000 in interest each year entirely tax-free, regardless of where it's saved. As a result, some are questioning the continuing value of cash ISAs, but these products shouldn't be overlooked.
Michelle Monck, head of Digital at Moneyfacts, said: "Cash ISAs are an important element of a good savings portfolio. If your savings portfolio is likely to earn more than £1,000 in interest, then you need to make sure you consider using an ISA first. Adults can save up to £20,000 per year into a cash ISA and not pay any tax on the interest it generates. Furthermore, cash ISAs come in a range of forms, including easy access, notice and fixed products."
As we enter the last full month of this tax year there are providers launching new products into the market. Examples include the introduction of a new two-year fixed rate ISA from Charter Savings Bank paying 1.95%. The account can be opened online and it accepts transfers in from cash and stocks and shares ISAs, but not from Help to Buy ISAs. Alternatively, those wanting to transfer a Help to Buy ISA or who would prefer to open an account in a branch or by post may want to look to Coventry Building Society, with its two-year deal offering 1.90% fixed until 31 May 2021.
However, even better rates are available if savers are willing to lock their money into a long-term fixed rate ISA. Currently, Coventry Building Society has the best ISA rate of a 2.30% on a five-year fixed deal. A minimum deposit of just £1 is needed to open the account and it allows savers to add further funds for a limited period. Savers can also access their funds before the fixed rate period is over, though this will result in closure of the account and 180 days' loss of interest.
If you like the security of a five-year rate but want the flexibility to make withdrawals then you may want to consider West Brom Building Society, which is offering a competitive rate of 2.10% from a minimum opening amount of £1,000. This five-year ISA allows savers to make further additions while the issue remains open and withdrawals are also permitted, although accessing the funds before 29 February 2024 is subject to a 180-day loss of interest penalty.
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.