The best ISA for every budget
Whether you are saving £1, £1000 or £10,000, these are the best accounts for you if you don't want the taxman to take a slice!
After a big spending year, including getting married and buying a house, my wife and I are getting ourselves into the savings habit, and are determined to build up as big a nest egg as possible, and preferably without having to fork any of it over to the taxman.
The best way to do that is of course to put that cash into an ISA.
Why I love an ISA
It’s hard not to love ISAs.
What you should consider before going for your first ISA
If you have made the effort to build up some decent savings, the last thing you want to see is a chunk of the return on your money disappearing into the hands of the Treasury.
ISAs allow you to avoid that. And best of all, the amount of new money that you can save each year in this way is increasing. From April 6th, the personal limit in a Cash ISA will jump to £5,100, while in the Budget, Alistair Darling confirmed the ISA limits will continue to rise in future years in line with inflation.
However, time is quickly running out for this ISA season to take maximum advantage of an ISA, so don’t hang around! Whatever your budget, these are the best, tax-free homes for your cash.
- Watch this video: 3 tips when opening your first ISA
The £1 gang
If, like me, you’re just starting out with ISAs and don’t have a huge amount to put aside, but want to get the best deal you possibly can, then the range of ISAs that allow accounts to be opened with as little as £1 is the best place to start.
And top of the tree is Santander, with its marvellous 3.50% flexible ISA. As if this rate wasn’t attractive enough, it also includes a guarantee that it will always be 3% above Bank Base Rate during the first 12 months. So should Bank Base Rate move upwards in the next year – as I personally believe it will do – you are guaranteed an even better rate!
The £1,000 nest egg
If you are looking to put £1,000 aside in an ISA, it might not be so clear cut. If you are opening your first ISA, once again the Santander 3.50% flexible ISA is your best bet. Indeed, for all new ISAs, that is the top rate available.
With £5,000 to put in an ISA, the money will have to come, at least in part, from an old ISA, due to personal ISA limits.
However, the Santander product does not accept transfers in from ISAs you may have opened in the past. Santander is the best choice for new money, but savers with old ISAs will need to look elsewhere if they want to earn the best rates on all their ISA savings.
So if you have used ISAs in the past, the top bet is the Nationwide e-ISA which is great for ISA transfers for all your ISA cash, paying 2.75%, including a 1% bonus until the end of June next year.
Adopt this goal: Build up your savings
A healthy safety net of £10,000
And finally, if you have a whopping great pile of money to transfer out of your old ISAs to earn a better rate, then the Nationwide e-ISA will do the trick once again, but there are two more accounts which will deliver you the same great rate of 2.75%, absolutely tax free.
On all balances of more than £9,000 both Santander and Alliance & Leicester offer a Direct ISA with this rate. However, the rate includes a whopping 2.25% variable bonus for the first 12 months, so you will almost certainly need to move that money elsewhere in a year’s time.
Locking away your tax-free cash
Of course, with traditional savings accounts, it tends to be the case that if you agree to lock your money away for a longer period, you can secure a better rate of interest on your money.
Luckily, you can do the same with ISAs, securing as high a rate as 4.6% by committing to put your savings beyond arms’ reach for a few years. For more on the rates available by locking your money up, have a read of Earn 4.6% on your savings tax free!