SUPER SAVER
Provider you’d never think of offering top-paying saving rate – and it’s tax-free
The account also allows savers to dip in and out
A MONEY app has launched a savings account with a market-leading rate that beats all the big-name banks.
Savers can keep a pot of cash from £100 and up to £20,000 in the cash ISA with a bumper 5.15% interest rate.
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The easy access account is offered by Plum and, as with all ISAs, cash is shielded from the taxman.
It's worth noting that the 5.15% rate includes a one-off bonus of 0.86% that drops off after 12 months.
After this, the rate is set to drop to 4.29%.
Set a reminder for one year's time to check if you can get a better rate when the bonus disappears.
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Plum customers with at least £100 to save can apply to open an account and get the 5.15% rate.
Or you can start saving into the ISA with £1 but you will get a reduced interest rate of 3%,
Anyone over 18 can apply to become a customer.
The added benefit of easy access ISAs is that you can take money out whenever you need to without penalty.
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The cash ISA will also be open to transfer-ins, with savers switching to this account from another getting a rate of 4.29%.
Even though Plum may not be one of the biggest brand names, it partners with Citi Bank, which is authorised by the City regular, the FCA.
Customers of all authorised UK firms have their cash protected up to £85,000 through the Financial Services Compensation Scheme (FSCS) in the event that a provider should go bust.
The account also uses Plum's smart automation meaning you can link the app directly to your bank account.
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Plum then sets money aside for you automatically each week to save, adjusting the amount to accommodate your income and outgoings.
It means you are saving without thinking about it, though customers can also deposit larger or smaller amounts at any time.
Rachel Springall, from comparison site moneyfactscompare.co.uk, said: “It’s great to see more activity within the cash ISA market, and the new deal from Plum pays a very attractive rate against its competition.
"Savers will need to make a note of the bonus that is applied and compare the offer to other deals in the market carefully.
“Overall, the cash ISA market has been steadily improving, which is fantastic news for savers looking for a new deal."
The account comes as savings rates have hit a 15-year high, with the Bank of England base rate sitting at 5.25%.
As income tax thresholds have been frozen, the rise in savings rates means more people are being drawn into having to pay tax on any interest earned on their savings.
ISAs can help shelter your cash from HMRC, as any cash kept in these accounts is not liable for income tax.
If you kept £1,000 in the account, after 12 months you’d earn £52.50 of interest.
But as the account has a variable interest rate, the returns can change at short notice.
So, you need to be prepared to move your cash if the rate changes and it’s no longer the most competitive account.
If you want to open the ISA, you’ll need to download the Plum app and become a customer.
After Plum, the next best easy access cash ISA is from an other app-based provider, Chip. This account pays customers 5.10%, but again this is a variable rate that can change.
You can start saving with just £1 with Chip's account. You'll need to download the app to get started and open an account.
What are the alternatives?
Easy access cash ISAs are just one type of savings account and others may better suit your circumstances.
Locking your money away into fixed-rate accounts can secure rates for the future. The top five-year fixed-rate cash ISA is offered by UBL and offers a rate of 4.16%.
Other easy-access accounts offer competitive rates, with Paragon paying 5.05%.
And you can earn a whopping 7% with regular savings accounts from major banks First Direct and Co-op.
With these accounts you'll usually need to pay in money each month and not make any withdrawals for a year to make the most of the rates.
Comparison sites can help you root out the best deals - try Moneyfactscompare, Compare the Market, Go Compare and MoneySupermarket.
You can search by account type using these sites.
Below, we've put together a list of the other types of savings accounts on offer.
Notice savings accounts - up to 5.40%
In exchange for giving up flexible access to cash, you can get slightly higher rates through notice accounts.
You'll need to give advance notice to your bank - up to 180 days in some cases - before you can make a withdrawal or you'll lose the interest.
Savers can currently get 5.40% on a 95-day notice account from the QIB UK Raisin account.
Savers depositing £1,000 into this account are set to gain £54.50 in interest after 12 months - though the interest rate is a variable rate so can change.
Regular savings accounts - up to 7%
These accounts pay some of the best returns as long as you pay in a set amount each month.
You'll usually need to hold a current account with providers to access the best rates.
For example, First Direct offers customers a regular saver paying 7% in interest.
You'll need to save between £25 and £300 a month, and up to £3,600 a year.
If you were to save £300 every month for 12 months with this account, you would earn approximately £136.50 in interest.
The Co-Operative bank also offers 7% interest on savings up to £250 a month, but you'll also need a current account with the bank.
Fixed bond savings accounts - up to 5.22%
You can get some of the best interest rates with fixed bonds.
However, you often won't be able to withdraw your cash at all within the agreed term.
If interest rates increase during your term you can't move your money and switch to a better account.
Some providers do allow withdrawals, but you'll be charged a hefty exit fee and will likely have to forfeit any interest gained.
Mizrahi's one-year fixed bond savings account pays savers 5.22% but you'll need to invest a sizeable minimum sum of £10,000.
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If that bar is too high, Hampshire Trust Bank allows savers to open its six-month bond with just £1 and up to £250,000 and gives a rate of 5.18%.
At the end of term, £1,000 invested in the account would earn you £25.90.
What is a Lifetime ISA?
FIRST-time buyers saving into a LISA can stash up to £4,000 into this account each year tax-free.
The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
For example, if you save £4,000, you'll get a £1,000 bonus.
The amount you pay in is linked to your annual ISA allowance (£20,000 for 2023/24) – for example, if you pay £1,000 into your LISA, you can still pay £19,000 into other ISA products.
Any bonus you earn doesn't count towards your ISA allowance.
You can open a Lifetime ISA with any bank, building society or investment manager that offers the product.
You can only open a LISA if you're aged 18–39.
You can hold multiple Lifetime ISAs, although you can only pay into one each tax year.
You can also transfer your Lifetime ISA to another provider, for example, to get a better interest rate.
If you want to use a Lifetime ISA to buy a home, there are a few restrictions you need to keep in mind:
- Only first-time buyers can use Lifetime ISAs to buy a home, which means you can't own, or have owned, a home in the UK or anywhere in the world.
- You'll need to be buying a home for no more than £450,000.
- You must be buying a home you plan to live in – the scheme isn’t for buying a home you want to rent out, or a holiday home.
If you don't use it to buy your first home, you can continue paying into a LISA until you're 50.
You can then make full or partial withdrawal from your LISA, without paying a fee, when you turn 60.
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