What is the Best Easy Access Isa
With interest rates on the rise, the cash ISA is making a comeback.
Despite the best easy-access cash ISA paying 1.90%, which is nowhere near the rate of inflation at 9.9%, it can be a great place to shield any interest from the taxman.
Once you have your emergency pot of ready cash, for the longer-term you might want to consider putting your cash in a stocks and shares ISA, as we explain below.
In this article, we cover:
- How do cash ISAs work?
- What are the best easy access cash ISAs?
- Where can I find the best fixed-rate cash ISAs?
- What are the top cash Lifetime ISAs?
- Can you lose money in a cash ISA?
Related content: Best stocks and shares ISAs
What is a cash ISA?
A cash ISA (individual savings account) is a tax-free "wrapper". You are sheltered from paying tax on any interest earned. For more on the benefits of ISAs, read our simple guide.
There are broadly two types of cash ISA: easy-access and fixed.
- Easy access: you can withdraw money whenever your like
- Fixed: pays a set level of interest over a certain period of time
There is a limit set by the government on how much you can save into your ISA each tax year while still enjoying the tax-free benefits.
During the 2022/23 financial year, you can save up to £20,000 per year across any ISA product. You can spread the allowance across difference types of ISA such as cash or stocks and shares.
You can transfer ISA allowances between providers and products.
If you are worried about exceeding your personal savings allowance or don't have one, a cash ISA is a useful product to protect your savings income from tax. We explain in our guide explaining how the personal savings allowance works.
Best easy access cash ISAs
The best easy-access cash ISA rate is currently with Paragon, which pays an annual interest rate of 1.90%. However, you are limited to three withdrawals every 12 months.
Always make sure you understand the restrictions on accounts before opening one. Some accounts have limits on:
- How much can be paid in
- How much can be withdrawn
- The notice period is required to take money out
- And some require a higher initial contribution than others
In the table below, we round up the other top rates. But bear in mind that if you aren't looking for an ISA, you can find easy-access savings accounts which pay better rates. We outline the best savings accounts.
| Bank or building society | Savings rate | Minimum opening amount |
|---|---|---|
| Paragon | 1.90% | £1 |
| Santander | 1.85% | £500 |
| Coventry Building Society | 1.85% | £1 |
| Marcus by Goldman Sachs | 1.80% | £1 |
| Gatehouse | 1.75% | £1 |
Best fixed-rate cash ISAs
Fixed-rate cash ISAs usually pay a higher interest rate than the easy-access accounts because your money is tied up for a set length of time.
Below are the top rates currently paid on two-year fixed-rate cash ISAs:
Top one-year fixed rate ISAs
Not keen on locking your money away for two years? We also list the top one-year fixed-rate cash ISAs below.
| Bank or building society | Interest rate | Minimum opening amount |
|---|---|---|
| UBL | 3.61% | £2,000 |
| Newcastle Building Society | 3.60% | £500 |
| Virgin Money | 3.50% | £1 |
| Santander | 3.35% | £500 |
Top three-year fixed rate ISAs
If you are willing to tie your money up for longer than one or two years, the top rates for cash ISAs fixed for three years are below:
| Bank or building society | Interest rate | Minimum opening amount |
|---|---|---|
| Virgin Money | 4.25% | £1 |
| UBL | 3.70% | £2,000 |
| Yorkshire Building Society | 3.50% | £100 |
Top five-year fixed rate ISAs
We also list some of the top five-year fixed cash ISAs below. However, it's a good idea to question whether the interest rates are worth locking your money up for this length of time.
Many of these rates don't look very competitive compared to other cash ISAs with shorter fixed terms.
| Bank or building society | Interest rate | Minimum opening amount |
|---|---|---|
| UBL | 3.70% | £2,000 |
| Furness Building Society | 3.55% | £1,000 |
| Secure Trust Bank | 3.55% | £1,000 |
Are cash ISAs worth it?
Since the introduction of the personal savings allowance (PSA) in 2016, many people no longer pay tax on their savings interest. As a result, many do not see the point in opening a cash ISA.
However with the Bank of England raising the base rate of interest, savers are seeing a greater return on their money which could push them over the PSA.
We think an ISA can also still be a very good idea if you:
- Have a fairly large chunk of money you want to keep in cash
- Are likely to breach the personal savings allowance (or don't qualify)
- Act quickly to get the best deals, as they can go fast
We go into more detail about how cash ISAs work.
In the table below you can also see how the average savings rates compare and how they have changed over the past two years.
| Average savings rates | Sept 2020 | Sept 2021 | Dec 2021 | Aug 2022 | Sept 2022 |
| Easy access | 0.22% | 0.17% | 0.20% | 0.69% | 0.85% |
| Notice account | 0.54% | 0.47% | 0.54% | 1.17% | 1.41% |
| Easy access ISA | 0.32% | 0.25% | 0.26% | 0.76% | 0.92% |
| Notice ISA | 0.54% | 0.31% | 0.37% | 1.07% | 1.21% |
Best Lifetime ISAs
If you are under 40, you can open the cash version of the Lifetime ISA, which gives you a 25% government bonus on your savings. These tend to have some of the best cash ISA rates in the market.
A Lifetime ISA can be used to help you save for a deposit on your first home (worth up to £450,000), or for retirement saving. We explain how a Lifetime ISA works.
Below are the three cash Lifetime ISAs currently paying the highest rates of interest.
Can you lose money in a cash ISA?
If the company you save or invest with goes bust, up to £85,000 of your cash is protected by the Financial Services Compensation Scheme (FSCS). This only applies as long as your provider is authorised by the Financial Conduct Authority or the Prudential Regulation Authority.
Also bear in mind that inflation will eat away at your savings pot. While the value of your capital won't fall (unless you spend your savings), the real spending power of your money is likely to decrease over time if interest rates do not keep pace with the rate of inflation.
At the moment that discrepancy is vast: while the best cash ISAs pay interest of around 3%, inflation is currently at 9.9%.
The best way to stop inflation eroding the spending power of your cash is to invest your money in a stocks and shares ISA instead.
This increases the chances of you making a return that exceeds inflation, although remember that investing is never risk free and should only be considered for long-term savings. To find out more, check out our beginners' guide to investing.
If you are interested in a stocks and shares Lifetime ISA, we round up the top providers top providers here.
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Source: https://www.thetimes.co.uk/money-mentor/article/best-cash-isas-in-2022/
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