Cash Isa rates are finally on the rise again

CASH Isa rates are coming off their rockbottom levels at last as new players take on the big banks.

Charter Savings Bank — consistently among the top payers of taxable accounts — has entered the Isa market.

Its Easy Access Cash Isa pays a top 1.06 pc and you can transfer your existing cash Isas into the account. It is marginally ahead of Virgin Money’s Defined Access Isa at 1.05 pc.

Charter has fewer restrictions than the Virgin account, which lets you make three withdrawals before it cuts your rate to 0.25 pc for the rest of the year.

The news comes none too soon for disenchanted Isa savers, who in April withdrew an unprecedented £914 million from these accounts. But savers put £1.83 billion into ordinary easyaccess accounts and £112 million into fixed rate bonds, showing that they are saving without cash Isas.

Typically, April is the month when money piles into Isas as savers look to use up their annual allowance — £20,000 for this tax year. In April last year they put in £495 million.

Research from data monitors Moneyfacts shows that while Isa rates are edging up, the big banks have refused to budge. Not one — Barclays, Bank of Scotland, Halifax, HSBC, Lloyds, NatWest, RBS, Santander or TSB — has upped its rate, and some pay as little as 0.01 pc.

Charlotte Nelson of Moneyfacts says: ‘The Isa market is showing signs of life. But the main banks have failed to get in on the action. Until these key players act, rates will remain low.

‘Standard accounts outshine Isas, leaving savers with the choice of losing their allowance or settling for a lower rate. Savers and providers are still trying to work out whether Isas are still worth it.’

The arrival of the personal savings allowance in April 2016 means basic rate payers pay no tax on the first £1,000 of interest earned each year in taxable accounts. Higher rate payers get £500.

There can be a huge gap between ordinary accounts and cash Isas even among the new banks. Kent Reliance pays 1.7 pc for one year on its bond and only 0.9 pc on its cash Isa — a difference of £160 interest on the full £20,000 Isa allowance. Cash Isas have got more complicated, too, with some offering a flexible option. This feature, introduced by the Government, lets you take money out and put it back in during the same tax year without affecting your allowance. So, you can put in £20,000 this tax year, take out, say, £5,000 and then replace it. But the Government let providers decide whether they offer flexibility on their accounts. Neither Virgin Money Defined Access Isa nor Charter Easy Access Cash Isa do. The top ‘flexible’ deal is 0.9 pc from Fo r d Money or Coventry BS. You can transfer your existing cash Isas to Ford Money. Coventry only allow you to deposit money you’ve put into another cash Isa this tax year. Charter Savings Bank has also launched fixed-rate Isa deals including a top 1.16 pc for one year. For two years, Virgin Money pays 1.3 pc.