The best cash ISA is often that which is associated with the best interest rate or what is known as the annual equivalent rate. This is the interest rate earned over the course of the year.
Interest rates on cash ISAs are currently at low-levels, this makes finding the best cash ISA in terms of AER even more important – rates can vary from 0.1% to 2%+. However, there are a few points to be mindful of when looking for the best cash ISA:
- Teaser rates – some cash ISA providers provider a good AER for the first 12 months which then subsequently drops the next year, otherwise known as a ‘teaser rate’. Look out for these teaser rates when searching for a cash ISA. Remember, a saver can switch between cash ISA providers to ensure that they are receiving the best rates.
- Understand different types of cash ISA – to find the best cash ISA, a saver should understand the different types, namely: easy access ISAs (withdrawals of money at any time with no charges), notice cash ISA (usually require a noticed period of 30 to 120 days to access money) and fixed-rate ISAs (money tied up between 1 to 5 years with the guarantee of a fixed interest rate).
Remember, the annual ISA allowance for 2015/2016 is £15,240 and can be invested in stocks and shares or saved in cash in any proportion.