Savings bonuses have sparked cash Isa madness - here's how to take advantage: SIMON LAMBERT
There’s something bizarre going on at the top of the cash Isa tables.
It’s not quite the X Files or a Blue Origin space conspiracy but it’s certainly a weird way of going about things.
The leading providers in our cash Isa tables have all been using unorthodox methods to put themselves ahead of the pack, with short three-month bonuses that are often changed multiple times a day.
The Isa rate battle kicked off about a month ago among a bunch of savings app players and then stepped up aggressively.
At the end of the tax year things went totally haywire, as providers leapfrogged each other, and headline easy access cash Isa rates temporarily soared as high as 5.92 per cent.
While we always like a good rate battle and race to offer our savers better deals, we at This is Money aren’t big fans of this short-term bonus bonanza.
The Savings X Files: What on earth is going on at the top of the cash Isa tables?
We’ve questioned why providers are allowed to list these deals with a high headline AER (annual equivalent rate) when this includes a three-month bonus and so they are guaranteed not to pay that for a whole year.
But we also know our readers want to be alerted to the best deals – sign up to savings alerts here - and so our tactic has been to highlight both headline rates and what accounts fall to after that.
We’ve also done some number crunching to reveal the real best deals over a year.
And this is where it gets interesting, because often savers are considerably better off not taking the absolute highest headline rate.
That’s because while some of the short-term bonuses bump up an already high rate, others are hefty add-ons that mask a much lower underlying one.
For example, Trading 212* was paying 5.6 per cent including a 1.1 per cent bonus, while until Wednesday Plum* paid 5.68 per cent with a 2.14 per cent bonus.
Many savers would have been tempted by Plum’s much higher headline rate but average the deals out over 12 months and Trading 212 was a clear winner.
This is Money figures, based on a simple average method, show Trading 212 paid a 12-month average rate of 4.78 per cent, compared to Plum’s 4.08 per cent.
As a stark illustration of how a bonus gap can warp rates, measured over a year this sent Plum from near the top of the savings tables to nearer the bottom.
Fortunately, however, Plum* has now switched to a 12-month bonus rate, which means that although its revised 5.04 per cent cash Isa rate is lower, the account is now a better deal over a year as the rate is genuinely 5.04 per cent.
Trading 212* is also back to a 12 month 0.72 per cent bonus, with its 5.07 per cent cash Isa.
Whereas, the current cash Isa table-topper Moneybox has a headline rate of 5.71 per cent with a 1.51 per cent bonus, so a 12-month average of 4.58 per cent.
Until Trading 212 edged up its rate today, the holder of the real best rate crown was a late arrival to the three-month bonus party, CMC Invest*. It has a 5.7 per cent headline rate including a 0.85 per cent bonus, which gives a 12-month average of 5.06 per cent.
Meanwhile, Chip* started this short-term bonus madness and has been one of the worst culprits for repeatedly changing rates but then suddenly stepped back last week and offers a simple 4.32 per cent on its cash Isa... for now.
If the above paragraphs felt somewhat complicated to read you have my sympathy, although trust me writing about this is equally mindbending. (The spreadsheet we are using to do our workings is titled Cash Isa Madness.)
Personally, I think the savings providers involved in this rate tussle should be compelled to clearly show an average projected rate across the year on their websites and apps, alongside the headline rate and any bonus.
A much better option altogether would be if they weren’t using these three-month bonuses full stop and were instead offering 12-month rates.
But the best of these Isas are worth snapping up...
However, I would still urge readers to consider some of these saving and investing apps for your cash Isa.
They pay far better rates than high street banks and building societies and offer a very user-friendly way to manage your money.
Watch out for the catches though, as some upstarts use the old high street banking trick of branding an account as easy access but then severely limit withdrawals or your rate will plummet.
The best deals don’t do this and come from CMC Invest, Trading 212 and Chip.
All three of those are also flexible cash Isas, meaning you can take money out and pay it back in within the same tax year without using up your annual allowance.
As I’ve written previously, this is the key to using an easy access Isa as a tax-beater for everyday savings – an ideal move for higher and additional rate taxpayers.
They are also all FSCS protected, which is the most important thing to check with any savings account. We explain what you need to know about saving apps and FSCS protection in our guide.
Of course, these high cash Isa rates are also teasers to get savers to sign up and then use the apps to invest, so that’s something you should be aware of too.
But some of the apps also offer very cheap Isa investing, so that’s not necessarily a bad thing.
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