Best Paying Cash ISA Accounts

Cash is an important part of a diversified portfolio. Make sure your allocation is working as hard as possible by putting it in a top-paying tax efficient ISA

Emma Wall 16 September, 2014 | 4:04PM

Interest rates have fallen by up to 55 basis points in the last fortnight – prompting savings experts to warn investors to act fast to protect their cash.

Despite no move in the Bank of England base rate, interest rates on cash savings accounts have steadily slipped closer towards 0% over the past year.

When building a portfolio cash is an important asset to consider – it provides liquidity and diversification. But just like a fund or stock holding, you need to think about your cash allocation and make sure you are investing in a product that offers you the best possible rate of return.

This is why investors should first use up their tax efficient ISA allocation before opting for any other type of cash account. The current ISA allowance is £15,000 and can be split between investments and cash.

But it is not enough to just choose any ISA – rates are falling. At the beginning of this month the best variable rate cash ISA you could invest in paid 2.25% - the Nationwide Flexclusive ISA. Now the best paying easy access account pays 1.7% and is provided by Market Harborough.

It is a similar story for fixed rate ISAs, which traditionally pay a higher rate of interest in exchange for locking away customers’ access to cash for one, two, three or five years.

At the beginning of September savers could have got an interest rate of 3% from Leeds Building Society 5 Year No Access ISA, today the best paying fixed rate ISA is from Newcastle Building Society offering 2.85% for five years.

It is not just ISAs which are experiencing these falls either, the best paying easy access savings account two weeks ago was the Britannia Select Access Saver 3, offering 1.75%. Today, the best rate is from SAGA – their Telephone Saver pays 1.5%, and is only available to customers aged 50 and over.

The best fixed rate cash accounts are the only savings products that have bucked the trend – the best paying account at the beginning of the month was the five year bond from Secure Trust Bank paying 3.01%. Today, with a minimum deposit of £1,000 Vanquis Bank 5 Year Fixed Rate Bond pays 3.21%.

“Rates on both new best buy accounts and existing savings accounts have continued to fall over the last 12 months, even though the possibility of a base rate rise has become far more of a reality,” said Anna Bowes from SavingsChampion.co.uk.

“Over the last 12 months, there have been more than 1300 cuts to existing savings accounts.”

Bowes blames the effect of the Funding for Lending Scheme and the lack of competition in the market which has continued to drive rates down.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Emma Wall  is former Senior International Editor for Morningstar

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