Help to Buy Isas: which account should I get?
The main attraction of a Help to Buy Isa is that the Treasury will give you a bonus of up to 3,000 when you buy your first home. Finding an account paying a decent interest rate will also help you build your deposit faster.
Thankfully, the rates on Help to Buy Isas compare very favourably with normal cash Isas. You'll struggle to 1.5% on an instant access Isa, but plenty of these accounts pay 2% or more.
It’s arguably fairer to compare them with regular savings accounts, as you’ll be growing your deposit over time. Even on this basis, Help to Buy Isa rates are far better. And that's before you've considered the government bonus.
But there’s huge variation between the rates on offer, so shopping around for the best rate is even more important than normal. If you save the full allowance, by the time you’ve saved the £12,000 to earn the maximum £3,000 bonus, you’ll earn £1,525 interest with the market leader – but if you opt for an account in the middle of the pack you’ll get just half that.
All the products announced so far give you instant access if you need it, but you’ll forfeit the 25% top up.
They’ll all let you transfer in, so if you’ve started a cash Isa this year you can switch the balance over to any account listed here.
If you’ve saved more than the limit this year, consider an account that lets you hold a second cash Isa like Nationwide. Or alternatively, you could close the first account and reopen another. If you do that, anything you’ve already put into an Isa will come out of your allowance for the year.
Where can you get the best deal?
Penrith Building Society 3% AER
This is the best rate on the market, but you have to live in Cumbria to open this account.
Tipton & Coseley Building Society 2.75% AER
Only available to residents of the West Midlands who live in the B, DY, WS or WV postcode areas.
Cumberland Building Society 2.75% AER
Account must be opened in branch. These are only located are in Cumbria, Lancashire and southern Scotland.
Darlington Building Society 2.55% AER
This account is also restricted. You must live in a DL, DH, SR, TS, YO or HG postcode area to apply.
Barclays 2.27% AER
The best deal available across the UK. It allows monthly interest payments, which can be useful if you want to switch of close the account early. Can be managed in branch, online and over the phone.
Nationwide 2% AER
If you can save more than £200 a month this is worth considering. It’s one of a few providers that lets you keep the rest of your yearly allowance inside a separate cash Isa - this is sometimes known as a split Isa. It’s available online, in branch and over the phone.
To see all the savings accounts on the market today visit the Moneywise savings and Isa comparison tool.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.