Reasons to be cheerful as new Isas launched to tempt savers

SAVERS struggling to keep pace with inflation have been given a timely boost by the launch of new cash Isas that promise to spark fresh competition in the savings market.

Nationwide and Santander have fired the starting gun for the so-called individual savings account (Isa) season by unveiling offers that went straight to the top of the best-buy tables, while Clydesdale Bank launches two competitive fixed rate Isas on Monday. And more new deals are on the way as other savings providers respond to the opening salvos.

With just five weeks until the end of the tax year, banks and building societies are looking to attract much-needed savings on deposit by persuading savers to use up their annual Isa allowances. The cash Isa allowance is currently 3,600 for under 50s but rises to 5,100 in April, having increased for over 50s last October.

Santander's new flexible cash Isa pays 3.5 per cent for a year and will rise if the Bank of England hikes interest rates in the next 12 months as it guarantees to pay 3 per cent above base rate for that period.

The account offers penalty-free instant access but does not accept transfers from existing Isas, unlike more than 90 per cent of the Isas currently available. If the deal proves popular it may only be available for a short period, however.

Andrew Hagger, head of communications at Moneynet, commented: "Savers have really been under the cosh over the last 18 months, having to contend with poor rates and soaring inflation, so let's hope this attractive deal spurs other Isa providers to retaliate," he said.

The most eyecatching of Nationwide's new accounts is a three-year fixed rate at 4.4 per cent, 0.4 per cent above the next best three-year deal.

And on Monday Clydesdale Bank launches a fixed rate Isa paying 3 per cent for one year and a 5 per cent deal fixed over five years, with the latter set to be the highest five-year rate on the market.

Hagger commented: "This is unlikely to be the last piece of action we'll see in the tax-free savings market and I fully expect to see some other new tempting offers being launched as we approach the tax year deadline," he said.

This year the more competitive deals are likely to come primarily from the high street banks as small lenders struggle to balance the needs of savers and borrowers. With Santander and Nationwide setting their stalls out, attention will now turn to high street names including Barclays and RBS.

But low awareness of the increase in the tax-free allowance means many Scots will fail to take advantage of Isas in the coming year, new research has indicted.

Almost half of savers in Glasgow are unaware that new Isa limits come into force from 6 April, while a third of those in Edinburgh and Aberdeen don't know about the change, according to new Barclays research. In all, over 70 per cent of savers across the three cities do not know how much they can invest in a cash Isa from the new tax year, it found.