Best cash Isa rates: there are just weeks left to use up your 2022-23 Isa allowance

With just weeks to go until the beginning of the new 2023-24 financial year, time is running out to use any remaining Isa allowance for 2022-23.

You can pay in up to £20,000 in Isa accounts in each tax year, and any savings interest or investment growth will be tax-free. However, if you don't use the full Isa allowance by the end of the financial year, you'll lose it. The allowance then renews on 6 April. 

In past years we've seen cash Isa rates get a boost in March as we approach the beginning of the new tax year, but many rates have already been increasing consistently for several months. That said, cash Isa rates usually still lag behind their savings account equivalents.

Here, we reveal the current top cash Isa deals, and see how they compare with savings accounts.

What are the current top rates for cash Isas?

The table below shows the top rates for restriction-free fixed-term and instant-access cash Isas, ordered by term.

_{Source: Moneyfacts. Correct as of 7 March 2023, but rates are subject to change. *The accounts from Gatehouse Bank are Sharia-compliant, so they pay an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).}

We also looked at the top rates for two, four and five-year fixed-term accounts. Gatehouse Bank offered the top rate for those products, too, with the same rate of 4.2% AER as its three-year deal. 

This is unusual, as you'd generally expect to get a higher rate of interest for a longer-term fix. However, it could indicate that savers are currently unwilling to fix for a long time while there's a chance rates could continue to climb.

For the best deals, you may need to look beyond the high street. While the table above shows Barclays offering the top rate for its one-year cash Isa and a minimum deposit of just £1, smaller providers and Islamic banks tend to offer the biggest returns. 

• Find out more: how to find the best cash Isa 

Is now a good time to open a cash Isa?

Average cash Isa rates are the highest we've seen for some time. According to Moneyfacts data, the average instant-access cash Isa rate rose to 2.01% on 1 March 2023, a jump from 1.85% in February. It's the highest average rate since February 2009, when it was 2.02%. 

The average one-year fixed Isa also rose to 3.56% at the beginning of March, its highest point since January 2009 (3.43%). The average longer-term fixed Isa rate also rose to 3.72% - it hasn't been at this level since June 2011, when rates for this type of account hit an average of 3.7% AER.

There's also a wealth of products to choose from - the overall number of cash Isas reached record volumes last month, at 439. That's almost as high as the peak 453 seen in August 2019.

Anyone planning on fixing their Isa savings, however, might want to wait to see if providers launch better deals closer the end of the financial year. 

If the Bank of England raises the base rate again when the Monetary Policy Committee meets on 23 March, it might push savings rates higher. There's no guarantee, though, especially as future base rate rises are already being priced into fixed-term bond rates. 

If you'd prefer to use your Isa allowance for investments, our recent news story reveals the best stocks and shares Isa options.

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Cash Isas vs savings accounts

The main advantage of an Isa is that any interest earned is tax-free and doesn't count towards your personal savings allowance (PSA). For basic-rate taxpayers the PSA is £1,000, falling to £500 for higher-rate taxpayers. Additional-rate taxpayers don’t have any allowance. 

Basic-rate taxpayers could exceed the PSA with around £32,500 saved with the current top easy-access account. Isas therefore tend to offer the most benefit to higher earners and those with larger savings balances. 

For these savers, the tax advantages can outweigh the slightly lower rates usually offered by cash Isas. 

Basic-rate taxpayers with more modest balances might find they're better off opening a savings account that gives a higher rate of interest without the tax breaks.

The table below shows the top rates for restriction-free fixed-term and savings accounts, ordered by term. 

_{Source: Moneyfacts. Correct as of 7 March 2023, but rates are subject to change. *The accounts from Al Rayan Bank are Sharia-compliant, so they pay an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).} 

As you can see, rates for standard fixed-term accounts are higher than Isa equivalents, but the difference isn't massive. There's a gap of just over 0.3 percentage points for both one and three-year fixed-term accounts. Rates for instant-access accounts are almost on a par.

Sarah Coles, head of personal finance at Hargreaves Lansdown, warns that high interest deals across all savings products tend to be short-lived. That's because once the product has raised enough cash, the bank or building society will quickly drop its rates or close the account to new customers.

She adds: 'It means any movement upwards is likely to be small, and if the best rates fill their boots, deals may end up being withdrawn, so the best rate on the market may actually fall. It means if you’re happy with rates right now, it might be a good time to take the plunge.'

• Find out more: how to find the best savings account

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How do Isas work?

There are three main types of Isa - cash, stocks and shares, and innovative finance Isas. If you're saving up to buy property, and aged between 18 and 39, there's also the lifetime Isa. 

Savers can deposit the full £20,000 allowance into one account or split it between different types of Isa, although the allowance for a lifetime Isa is only £4,000.

Whatever account you choose, you can't invest more than your total allowance across the different types. You can also only pay into one type of each Isa per tax year.

If you've already paid into, say, a cash Isa and see a better rate on the market, you might still be able to take advantage of it by transferring your Isa savings to the new provider. If you have accounts with deposits from previous years, you can transfer all or part of those, just as long as no 'new' money is paid into more than one account.

To get around this rule, some banks and building societies have started to offer 'combined Isas' or 'portfolio Isas', where you can open multiple cash Isa accounts in the same year under the same 'wrapper'. This is helpful if you really want to split up your cash - for instance, you might want to save some in a fixed-rate account, while keeping some in an instant-access account.

• Find out more: cash Isa rules and allowances