Stick or twist? NS&I boosts its Direct Isa rate for 333,000 customers - but savers can still find far better interest elsewhere

  • Direct Isa has risen from 2.15% to 2.4% today
  • Around NS&I 333,000 customers will benefit
  • They can get up to 3.51% on easy-access cash Isa rates elsewhere 

By ED MAGNUS, SENIOR THIS IS MONEY REPORTER

Updated:

National Savings and Investments has boosted the interest rate on its Direct Isa savings account today from 2.15 per cent to 2.4 per cent. 

Around 333,000 NS&I Direct Isa customers will benefit from the rise. 

The easy-access account can be started with £1, has no notice period or penalty when withdrawing funds, with all interest earned tax-free.

Someone holding the maximum Isa allowance of £20,000 in this account can now expect to earn £480 in interest over the course of a year.

Rate boost: NS&I has upped the interest on its Direct Saver Isa - but one expert has labelled it 'underwhelming'

Rate boost: NS&I has upped the interest on its Direct Saver Isa - but one expert has labelled it 'underwhelming' 

NS&I believes the new rate means that the product is priced appropriately when compared to the rest of the Isa market. 

The average easy-access Isa rate is currently 2.29 per cent, according to Moneyfacts.

The best buy easy-access cash Isas are currently offered by Paragon, Shawbrook and Cynergy Bank. All three allow for transfers in and come with Financial Services Compensation Scheme protection up to £85,000 per person.

Paragon Bank's Triple Access Isa pays 3.51 per cent. Customers are permitted up to three withdrawals each year. Exceeding this limit will see the rate drop to 0.75 per cent.

Shawbrook and Cynergy are both offering straightforward easy-access deals like NS&I's Direct Saver.

Cynergy Bank pays 3.5 per cent  and Shawbrook Bank pays 3.45 per cent.

Best cash Isa accounts at a glance 

There are none that beat inflation, however, make sure you shop around for the best returns possible.

Easy-access: Cynergy Bank - 3.5%

Limited-access: Paragon Bank - 3.51% 

One-year fixed-rate: Shawbrook Bank - 4.32%

Two-year fixed-rate: Newcastle BS - 4.4% 

Three-year fixed rate: Virgin Money - 4.41% 

The good news is that NS&I customers, fed up with average returns can transfer their Isa to secure a better deal.

There's no need to contact NS&I either, as the new provider will request the money from it directly. 

Those switching just need to open an Isa account with a new provider and let it know they want to transfer an existing Isa into it. 

The new provider will send an Isa transfer form, either online or by post, and once completed and returned, the new provider will then complete the transfer. 

The process should take no more than 15 days. 

Anna Bowes, co-founder of Savings Champion says: 'This is an underwhelming rate increase by NS&I. 

'Often NS&I does not pay the best rates but that that is because you have the benefit of the protection of all the funds in the account – which can be up to £2million in the Direct Saver. 

'But as you can't transfer previous cash Isas into this account, you can only add £20,000 per annum, which means that you might as well choose a different cash Isa paying a far better rate with another providers. 

'At the moment Cynergy Bank is paying 3.5 per cent on its easy-access Isa. On £20,000 that's a difference of earning £700 a year or £480.

'With inflation still in double figures, every penny counts, so if you can find a better rate, switch.'

Should you transfer?

An Isa transfer allows you to move your money from one provider to another without losing the tax-free benefits.

Moving old Isas to a new provider won't count towards this allowance, as the £20,000 limit only applies to money paid in from outside an Isa wrapper.

You can transfer some or all of your Isa allowances from previous years. However, if you'd like to transfer your current year's allowance, you must transfer the entire balance.

Under current rules, Isa providers must allow transfers out, but there is no obligation to accept transfers in. Therefore, not all Isa providers do - so it's always worth checking this before switching.

Also bear in mind that some cash Isa providers will charge a penalty for closing the account. This is particularly the case with fixed-term deals which are yet to finish.

It's always worth checking what these fees are so you can weigh up whether the transfer is cost-effective.

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