For years, I’ve been advising you to steer clear of the savings accounts offered by the big High Street banks.
They’ve historically paid miserably low interest rates because they know many of us simply leave our money where we bank for convenience.
However, there’s been a surprising shift in the landscape since April 6, and it’s worth paying attention to.
The Surprise Shift in Bank Competition
Until recently, these banks didn’t offer competitive rates for savers, even with the Bank of England’s base rate at 4.75%. But this tax year, something unusual has happened.
The major players are suddenly fighting for a share of the cash Isa market, specifically that new £20,000 allowance.
Just a few months ago, the best one-year fixed rate Isas from the likes of Halifax and Lloyds were offering a modest 3.95%, and Santander was even lower at 3.6%. Meanwhile, other banks were offering up to 4.5%. Now, despite the base rate falling slightly to 4.5%, these banks have increased their rates to a more attractive 4.25%.
What the Major Banks Are Offering
Big names like Halifax, Lloyds, Santander, Bank of Scotland, and Nationwide are all offering this improved rate of 4.25%, which is a step up from their previous offers.
Even better, the minimum deposit required to open these accounts has decreased from the typical £1,000 or £5,000 to just £500.
In some cases, Bank of Scotland and Nationwide only require a mere £1.
However, NatWest has been a bit of a letdown with its low rate of 3.75%, and Barclays isn’t far ahead, offering 4.1% with the stipulation that you can only make three withdrawals a year, each capped at 10% of your balance.
That said, some online banks, like Aldermore, Vida Savings, and Zopa, are also offering rates of 4.25% on one-year Isas, and the top rates are coming from Charter Savings Bank and Tipton Building Society at 4.27%.
What About Two-Year Fixed Rate Options?
If you’re looking to lock in your rate for a little longer, two-year fixed-rate Isas are also offering decent returns.
Nationwide and Santander are offering 4.1%, while Aldermore and Charter Savings Bank are providing a slightly better 4.2%.
The New Flexibility with Cash Isas
A major change last year allowed you to open multiple cash Isas, so you can mix and match fixed-rate and easy-access accounts. However, the big banks still have restrictions.
They only let you open one cash Isa per tax year, so if you want to open more than one, you’ll need to look elsewhere.
Easy Access Accounts with a Catch
While easy-access accounts may seem like a flexible option, many now limit how often you can make withdrawals.
Some accounts allow just one or two withdrawals per year, which hardly seems “easy access” to me.
However, these accounts do tend to offer slightly higher rates than fully accessible options.
The top deal for a restricted easy-access Isa is from Vida Savings, offering 4.63%, but if you exceed the four withdrawals allowed, your rate drops to just 2.5%.
If you prefer an account with no withdrawal limits, Charter Savings Bank is offering a 4.59% rate on easy-access cash Isas.
Which Isa Option Is Right for You?
It all depends on your savings goals. If you’re looking for a fixed rate and don’t need to touch your money, the one-year and two-year fixed-rate Isas from various banks are a solid option.
But if flexibility is key, you’ll have to weigh the benefits of slightly higher rates with the restrictions on withdrawals.
Either way, it’s clear that the competition among the big banks is heating up, and it’s a good time to shop around for the best deal.