How new banks are breathing life into Isas ...

NEW banks are launching accounts with rates that could make tax-free cash Isas worthwhile again.

Savers have been deserting these once- popular tax- free accounts over the past couple of years.

Behind their disenchantment are poor rates combined with a new tax break on standard savings accounts.

However, a stream of new cash Isa accounts from small banks and building societies paying more than 1 pc has started to turn back the tables.

Last year was the worst on record for cash Isas since their launch in 1999.

Money Mail revealed last month that NatWest paid just 18p interest on £1,000 to savers in its cash Isa, while Halifax and Lloyds managed just 63p.

Banking trade body UK Finance has revealed that cash Isa balances with the big High Street banks — including Lloyds, Barclays, Halifax, HSBC, NatWest, RBS, Santander and TSB — tumbled 4.3 pc last year, from £164 billion to £157 billion.

The exodus accelerated in the second half of the year, with savers taking out £6.2 billion.

But while savers withdrew £670 million in December from the big banks, the amount going into all banks and building societies rose by £31 million. This reverses the trend of the previous six months, which saw falling balances.

Cash Isas lost their appeal as rates tumbled from an average 1.4 pc two years ago to 0.7 pc today. With interest rates at rock-bottom levels, basic-rate taxpayers have little use for cash Isas.

Even top rates on cash Isas trailed behind those on standard accounts. At one point, you could earn 1.25 pc on easyaccess accounts, but only 1 pc on the equivalent cash Isa.

Savers found that they could earn more in taxable easy- access accounts than in cash Isas, thanks to the Personal Savings Allowance. This tax break, which came in on April 6, 2016, lets basic-rate taxpayers earn £1,000 interest each year from ordinary savings without paying tax.

The allowance comes on top of any interest you earn on cash Isas or any premium bond wins.

For higher-rate taxpayers, the limit is £500, while additional-rate payers get nothing.

Now, though, the gap is closing. New banks that have competed vigorously for savers with their taxable bonds are launching cash Isas.

Virgin Money’s new easy-access Isa pays a top 1.21 pc.

Leeds BS Limited Issue Online Access pays 1.16 pc — but the account only runs until March next year, when your money is moved into an instant access Isa maturity account.

The new 1.16 pc rates from AA Easy Access Cash Isa and Tesco Bank Instant Access Cash Isa are boosted by an initial bonus, which lasts for a year, then the rate drops. Big banks pay virtually nothing still. At NatWest, the cash Isa rate is 0.1 pc on balances up to £10,000 and 0.25 pc up to £25,000. Halifax Instant Isa Saver and Lloyds Instant Cash Isa pay 0.2 pc and Santander Isa Saver pays 0.25 pc up to £10,000 and 0.5 pc on higher balances. HSBC pays between 0.45 pc and 0.75 pc, depending on whether you add to your account each year.