Cash Isas stage a comeback as interest rates triple

Cash Isas stage a comeback as rates triple: Latest deals put out-of-favour tax-free accounts back in the spotlight

Cash Isas are making a comeback after rates more than tripled this year.

Scores of savers abandoned the tax-free accounts when interest rates plummeted in the wake of the financial crisis.

But they are fast regaining their appeal, and our best cash Isa savings tables show rates rising. 

Best deal: The best cash Isa from Coventry Building Society now offers 1.55% versus 1.9% with an ordinary account – worth 1.52% after tax

In recent years, only about one-in-ten people have paid tax on the interest earned from their savings after the personal savings allowance was introduced in 2016.

This concession from HM Revenue and Customs (HMRC) allows Britain’s 27.2 million basic-rate taxpayers to earn up to £1,000 a year in interest from an ordinary account without paying tax. The allowance falls to £500 for Britain’s 5.5 million higher-rate taxpayers.

But rising rates mean savers risk eating up their personal savings allowance much more quickly. 

There is evidence the tide could be starting to turn. There is about £286 billion in cash Isas, the lowest level since May 2019.

And withdrawals are slowing. Savers took out £353 million in June, according to the latest figures. This is a third of the £996 million that flowed out in the previous months.

Anna Bowes, from Savings Champion, says: ‘Cash Isas are coming back into their own after disappointing savers.’

James Blower, founder of consultancy Savings Guru, adds: ‘Cash Isas are now definitely worth looking at. 

Previously, the savings allowance killed the attraction of Isas for most savers. What was the point of saving within a tax-free wrapper if you are spared tax anyway?’

Savers can earn 3.3 per cent with a one-year bond from Investec and Tandem. 

It means that once you have £30,250 in the account, you will have used up your £1,000 personal savings allowance, or £15,125 for higher-rate earners.

On easy-access accounts, Al Rayan pays a top rate of 1.9 per cent. 

So you will have blown your allowance once you have £52,000 as a basic-rate payer or £26,000 for a higher-rate payer.

The gap between cash Isa rates and what you can earn with an ordinary account is also closing.

In January, the top easy-access cash Isa paid 0.45 per cent. Today, the best cash Isa from Skipton Building Society offers 1.6 per cent versus 1.9 per cent with an ordinary account.

Big player Santander has also joined in the fray with an easy-access cash Isa paying 1.5 per cent for the first 12 months and a one-year fixed deal at 2.3 per cent.

How to find the best savings rates

Savings rates have been in the doldrums for many years but the situation was hugely exacerbated by the pandemic and the emergency base rate cut to 0.1 per cent.

But there are ways to ensure your cash is at least in the best of the bunch at all times. 

Checking top rates is essential, but it is also possible to make life easier overall and manage your savings pots in one place. 

Over the past few years a number of savings platforms have launched, offering savers the option to switch as and when better deals become available and manage accounts from different banks and building societies.

They each work slightly differently and include their own exclusives. To check out what’s on offer take a look yourself:

Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. 

> Raisin* 

> Hargreaves Lansdown Active Savings*

> Flagstone  

Or you can view This is Money’s comprehensive best buy savings tables here, independently curated by savings guru Sylvia Morris:

> Compare best savings rates now