Santander tops table of banks giving you most bang for your buck

As rates hit a ten-year high...

CASH Isa rates have started to tick up as the end of the tax year looms. The rises have been driven by competition between smaller banks and building societies. But even the big banks, which have been absent for years while rates languished at all-time lows, have returned to the scene.

The best easy-access accounts are now paying north of 3 pc, up from 0.85 pc this time last year.

They are the best rates that savers have seen on variable accounts for more than ten years, say data analyst Moneyfacts compare.

The gap between what you can earn on an easy-access account against a cash Isa has all but disappeared. That is despite cash Isas typically paying less than ordinary savings accounts.

As interest rates rise, the taxfree status of Isas is putting them at centre stage for prudent tax planning.

Rising rates mean some savers will end up paying tax in an ordinary account.

Each year, thanks to the personal savings allowance, basic-rate taxpayers can earn £1,000 in tax-free interest on their savings. For higher-rate taxpayers, the tax-free limit is £500. (Top-rate taxpayers get nothing.)

Today’s higher savings rates mean it is far easier to hit these limits — even with a modest savings pot.

But interest earned in cash Isas is automatically tax-free, making them an increasingly attractive place to stash your money.

Sarah Coles, of stockbroker Hargreaves Lansdown, says: ‘ We’re seeing one of the most competitive Isa seasons for years, with rates both on easy-access accounts and one-year fixed rates pushing higher.’

LAST week, Santander led the big banks in raising rates for Isa savers. It now offers 4.15 pc to savers willing to tie up a minimum of £500 until April 1 next year, 4.25 pc for 18 months or 4.2 pc for two years.

If you transfer at least £10,000 from another provider into its fixed- rate offers, you will also receive a £50 e-voucher. This can be spent at more than 100 retailers, including John Lewis and the National Trust.

To qualify, you need to apply by April 30 and ask Santander to arrange the transfer.

On the same day, Halifax, Bank of Scotland and Lloyds also launched new accounts priced at the top end of the market.

Halifax pays 3.9 pc fixed for one year and 4 pc for two years. Lloyds and Bank of Scotland offer a slightly lower 3.8 pc for one year or 3.9 pc for two. Smaller banks reacted quickly, with Kent Reliance pushing up its one-year fixed rate to 3.95 pc and two- year account to 4.1 pc for new savers. Aldermore moved to 3.95 pc and 4.05 pc respectively.

They were followed this week by Virgin Money, with a one-year rate of 4.11 pc and 4.26 pc for two years. Ford Money raised its rates to 3.95 pc and 4.05 pc respectively.

Easy-access rates are also on the way up, sparked by both Santander’s launch of its online e-Isa at a variable 3.2 pc and the Bank of England decision to raise the general level of interest rates from 4 pc to 4.25 pc last week.

Yorkshire and Coventry BS announced new rates which come into effect next month, paying up to 3.35 pc if you limit the number of withdrawals you make.

The best easy-access rate that allows you to make as many withdrawals as you like is from Swansea BS at 3.25 pc — and the rate could rise following the Bank of England’s recent move. But it is only available to those who live in Wales.

The Santander rate of 3.2 pc only lasts for a year, after which your money is moved into its Isa Saver — paying just 0.7 pc.

That being so, if you are tempted by the rate, make a diary note to switch to a better account in 12 months’ time.

Act quickly to use your £20,000 Isa allowance for this tax year, which ends on April 5.

Some providers say you need to apply as early as this Friday (March 31) so that they have time to open your account before the end of the tax year.

If you don’t use it, you will lose it because you can’t carry it over. But you will get a new £20,000 allowance from April 6 for the next tax year.