Isas fall out of fashion as rates tumble

CASH Isas, the once popular taxfree accounts, are losing appeal.

In April, savers withdrew an unprecedented £914 million from these accounts. Typically, it is the month when money piles in as savers look to use up their annual allowance — £20,000 for this tax year. In April last year they saved £495million.

It is the third consecutive month money has flowed out. In February, savers withdrew £51 million, and £682 million in March.

Rates on cash Isas are generally lower than on taxable accounts. The top one-year taxable fixed-rate bond pays 1.7pc from Atom Bank, which launched yesterday. But the best you can do on a cash Isa is 1.15 pc at Bank of Cyprus.

As a basic rate taxpayer, you earn £136 interest in the bond after tax, against £115 in an Isa on £10,000.

But you don’t have to pay any tax on your first £1,000 of interest each year as a basic rate taxpayer. Higher rate taxpayers get £500. By using the personal savings allowance, tax payers would see a higher £170 from the bond.

Some cash Isas are flexible — you can take money out and replace it in the same tax year without it counting towards the annual allowance.

Top flexible easy-access cash Isas include Coventry BS Easy Access Isa 5 and Ford Money Flexible Isa both at 0.9 pc.