Newcastle Building Society Launches Better Cash Purchase Agreements Isa

Savers looking to protect the interest they earn from the taxman are seeing wave after wave of new best buy cash Isa rates hitting the market.

Newcastle Building Society is the latest provider to launch market leading rates. It’s new one-year fixed-rate cash Isa pays 3.6 percentwhile his two-year arrangement pays 4.1 percent.

The next best one-year deal currently pays 3.2 percent, while the next best two-year deal pays 3.4 percent.

Tax free: those who save in Isa cash will protect any interest they earn from the tax man

Tax free: those who save in Isa cash will protect any interest they earn from the tax man

At present, neither a three-year or five-year fixed-rate cash Isa equals Newcastle’s one-year deal.

Someone saving £20,000 on Newcastle’s one-year deal will earn £720 in interest after one year, or £1,673 after two years if they opt for the two-year deal.

Savers can apply online or at a branch and can open an account with £500.

The rate is set to a specific date rather than exactly one year from account opening.

In the case of the one-year contract, the rate is fixed until November 3, 2023 and in the case of the two-year account, it is fixed until November 4, 2024.

Both will allow savers to withdraw funds if they need to, but doing so will come at a cost.

Those who withdraw from the one-year deal will lose 90 days of interest. Withdrawing from the two years will mean losing 120 days of interest earned.

Savers looking to sign up for the first time or transfer their existing Cash Isa to one of Newcastle’s offerings will need to act fast.

Smaller savings providers have smaller funding goals they want to hit. Once enough cash has come in, they will close the deal.

Newcastle did this with their best one-year fixed bonus paying 4.1 per cent, having released it just a day earlier.

How far will Isa rates go up in cash?

All savings rates are rising rapidly these days and cash Isas are no exception.

The average Isa rate on easily accessible cash has quadrupled since the beginning of the year, according to Moneyfacts, from 0.27% to 1.05%.

The average one-year contract has risen on a similar trajectory during that time, rising from 0.59 percent to 2.3 percent.

But the competition at the top of our best-buy savings rate tables has been even more pronounced.

This time, exactly four weeks ago, Isa’s best one-year cash deal paid 2.5 percent.

This means that in less than a month the best offer has risen by 1.1 percentage points, well above the recent Bank of England base rate hike of 0.5 percentage point.

The free fall in the value of the British pound against the dollar, coupled with inflation, is leading many to predict that the base rate will continue to rise.

There has been talk this week that the base rate could even go as high as 6 percent next year.

Andrew Hagger, personal finance expert at MoneyComms, believes that if things continue as they are, we can expect to see more increases in the cash Isa rate.

He said: “It’s hard to tell how long the current economic crisis will last, but I wouldn’t be surprised to see easy-access cash Isa rates approach 2.2 percent or 2.3 percent and a one-year fix at around 4 percent. By the end of this year.’

Should you use a cash Isa for your savings?

While Isa rates are increasing, they continue to pay less than equivalent non-Isa offerings on the market.

The best standard one-year fixed bond now pays 3.91 percent, while the best two-year bond pays 4.33 percent.

The difference between rates can complicate things for savers who are weighing a cash Isa.

There’s also an added fact that we all have a personal savings allowance, with the exception of extra-rate taxpayers who earn £150,000 or more.

This means that outside of a tax-free Isa, interest earned on savings accounts will continue to be tax-free up to a certain level.

I think cash Isas will suddenly become much more popular, as rising savings rates will see many more people risk exceeding their annual personal savings allotment.

Andrew Hagger, MoneyComms

Savers who pay tax at the base rate pay no tax on the first £1,000 of interest they earn. Savers in the highest rate tax band receive protection of up to £500.

Whether a cash Isa is worth it will therefore largely depend on how much someone has saved and what tax bracket they fall into.

For example, someone transferring £10,000 to the best offer a year (other than Isa) would earn £390 in interest, which is below the annual allowance for a higher rate and standard rate payer. In this scenario, using an effective Isa makes no sense.

However, someone who transfers £30,000 to the best one year deal (other than Isa) may end up losing overall.

Someone saving £30,000 at the 3.9 per cent rate will earn £1,170 in interest. For a taxpayer with a higher rate, that will mean earning £902 net interest after tax and her personal allowance will be taken into account.

Someone holding £30,000 in Isa’s 3.6 per cent Newcastle cash deal for a year will earn £1,080 in interest overall, £178 more than the non-Isa equivalent.

Says Hagger, “I think cash ISAs are going to become a lot more popular all of a sudden, as rising savings rates will see a lot more people risk exceeding their annual personal savings allotment.”

‘An Isa will allow them to protect some extra money from the tax collector.

“If you have an easy-to-access standard account for your emergency savings, I think a one-year fixed-rate Isa is a decent option right now.”

It's worth it?  Whether a cash Isa is a good idea will largely depend on how much someone has saved and what tax bracket they're in.

It's worth it?  Whether a cash Isa is a good idea will largely depend on how much someone has saved and what tax bracket they're in.

It’s worth it? Whether a cash Isa is a good idea will largely depend on how much someone has saved and what tax bracket they’re in.

Anna Bowes, co-founder of Savings Champion adds: ‘With savings rates rising across the board, savers will fully utilize their personal savings allowance with a much lower deposit than in recent years.

“But the good news for those who are now defaulting on their personal savings allowance is that Best Buy Isa rates have recovered somewhat, and therefore many are paying a better tax-free rate than the bond rate.” of an equivalent fixed rate or of easy access”. account after tax is deducted.

For example, the best one-year bond is with Oxbury and is paying 3.91 percent. If you discount 20 percent of taxes, the rate falls to 3.13 percent, less than the best one-year cash Isa.

Similarly, the best easy access account pays 2.1 percent, which is 1.68 percent after deduction of the basic rate tax, while the best easy access Isa account, Triple Access Isa of Paragon Bank, pays a tax-free rate of 1.9 percent. penny. So Isas is becoming more relevant again.’

Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any business relationship to affect our editorial independence.