New Santander ISAs reserve best rates for existing customers

Santander's new ISAs are reserved for existing customers. Are they good enough to make you switch?

ISA season is now in full swing and Santander is the latest provider to launch new ISA deals.

However, it’s keeping the best rates for savers who have a current account or credit card with the bank.

Santander’s best rates

The bank’s headline rate is 2% on its Two-Year Fixed Rate ISA – not a bad rate as we mark six years of the Bank Base Rate remaining at the record low of 0.5%.

For those customers who don’t want to tie up their money, and require instant access to their cash, Santander’s Direct ISA Saver pays 1.5% AER for 12 months. The account allows instant access via cash card, telephone and internet banking.

Both the Two-Year Fixed Rate ISA and Direct ISA Saver require a minimum opening balance of £500.

Santander customers only

However to be eligible for these savings accounts you need to be either a Santander 123 current account or credit card customer, or a Santander Select customer.

With the Santander 123 current account you earn 1% on balances of over £1,000, 2% on balances of over £2,000 and 3% on balances of £3,000 to £20,000. You also get up to 3% cashback on certain direct debits. It will set you back £2 a month. Meanwhile, with the 123 credit card you earn up to 3% cashback on your spending, depending on where you shop. You also benefit from a whopping 23 months of 0% interest on your spending. There is a £24 annual fee though.

Santander Select is a service for wealthier customers, available by invitation only. To be eligible you need to pay in at least £5,000 a month into your account, maintain £75,000 in any Santander investments, savings or current account, or have a property worth at least £500,000 with a Santander mortgage.

Earn up to 5% from a current account

Other rates

Santander has also launched some new ISAs for savers who aren’t existing Santander customers. The rates on these are lower: 1.5% on the Two-Year Fixed Rate ISA and 1% on the Direct ISA Saver.

All new Cash ISA accounts accept new ISA subscriptions and transfers in of existing ISA money, including existing Santander ISAs.

How do the rates compare?

There are a couple of two-year fixed rate ISAs which pay more than Santander and, crucially, don’t insist on you taking another product with the same provider.

Yorkshire Bank’s Cash ISA Fixed Rate Bond pays 2.1% for two years. It accepts transfers in and requires a minimum deposit of £2,000. However you’ll need to go into a branch both to open and run the account.

Clydesdale Bank – part of the same banking group – offers the same deal.

The Post Office’s Online ISA Two-Year Fixed Rate pays slightly less than Santander at 1.95%. It accepts transfers in, has a minimum deposit of £500 and you can open and run the account online.

For those requiring instant access to their ISA cash, NS&I's Direct ISA pays 1.5% and can be opened with just £1.

Other loyalty rates

Santander isn’t the only ISA provider to restrict its best rates to consumers who take other products with the bank.

Under a scheme called Save Together, HSBC is paying HSBC Advance customers who also have a Loyalty Cash ISA an extra £10 a month for 12 months, on top of 1.5% AER interest.

Alternatives to Cash ISAs

So far this year the rates on Cash ISAs – even the market-leading ones – are less than inspiring.

You may be better off investing in a Stocks & Shares ISA. You can invest in all sorts of things depending on your ISA, from individual shares and funds to bonds and gilts. And as it's an ISA, the returns are free of tax. Remember though that it’s an investment, so your money is not secure – you could end up with less than you put in.

For more, read our Beginner's guide to Stocks & Shares ISAs.

Take a look at the top Stocks & Shares ISAs in the lovemoney.com investment centre

More on savings and ISAs:

What next for inflation and interest rates

HSBC Save Together: Earn £10 a month from your ISA

Where to earn most interest on your cash

Interest rates enter sixth year at 0.5%