Introduction of easy-switching rules means current accounts now paying more than cash Isas

Savers looking to put money aside each month over the short-term should avoid cash Isas.
Rates on easy-access, tax-free accounts have plummeted over the past 12 months. So sharp are the falls you can now earn more in taxable accounts even after tax has been deducted.

Competition: You can earn as much as 4 per cent simply by leaving your money in your everyday account
Traditionally, cash Isas have been the first port of call for regular savers. The tax-free perk boosts your interest by 25 per cent as a basic-rate taxpayer.
But now rates can be as high as 4.8 per cent after tax (6 per cent before) on a regular savings account — against 1.8 per cent tax free in a cash Isa.


And with fierce competition in the current account market following the introduction of easy-switching rules, you can earn as much as 4 per cent (5 per cent) on the first slice of your savings, simply by leaving your money in your everyday account.
To beat Isa payouts, use 1.8 per cent after tax as the benchmark.
This is the top rate on offer — from the Post Office — with an easy-access Isa.
If you are happy to commit between £25 and £250 a month for a year, West Bromwich BS’s Fixed Regular Saver at 2.64 per cent (3.3 per cent) or Barclays Monthly Savings at 2.6 per cent (3.25 per cent) are more lucrative.
Both let you miss the odd payment during the year.

A £250 monthly saving at Barclays means £42 after-tax interest — better than £29 tax-free from the same savings into the Post Office Premier Isa.
Local building societies such as Norwich & Peterborough offer similar fixed-rate deals.
Others — such as Leeds and Cambridge BS — pay 2.44 per cent (3.05 per cent), but the rate is variable so can change during the year.
Move your money at the end of 12 months. If you don’t, providers often shift it for you, and it can end up in an easy-access account paying a pittance.

 

Check out what your current account provider offers, too. First Direct pays 4.8 per cent (6 per cent) on its Fixed Rate Regular Saver to its 1st current account holders on up to £300 a month.
This £300 will pay £93 after tax at the end of the year — against just £35 at 1.8 per cent in the cash Isa.
If you don’t want to commit for 12 months, you can use your current account as a temporary savings pot. But you need to be disciplined and not spend the money earmarked for savings.
If you earn nothing on your current account, look to switch to one that pays interest or other perks — with no monthly fee.

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Nationwide pays 4 per cent (5 per cent) on the first £2,500 to FlexDirect holders. You earn this rate on the telephone and online-based current account as long as you pay in at least £1,000 a month. But the rate applies for the first year only.
Once you reach the £2,500 limit, move the excess into a savings account. Anything over this earns nothing.
Yorkshire and Clydesdale banks pay a fixed 3.2 per cent (4 per cent) until March 2015 on the first £3,000 in your account.
With Halifax Reward’s current account you earn £5 after tax a month as long as you pay in  at least £750 a month and set  up two direct debits on  the account.
This works out better for some account holders than the 0.5 per cent or 1 per cent tax-free the bank pays on its ISA Saver Variable.
The £5 monthly reward is equivalent to earning 1.23 per cent interest after tax on your £750 salary.
For £1,000  a month, it’s  0.92 per cent (1.15 per cent).
But for switchers it can be even more lucrative, as the bank  pays you £100 for signing up.
To earn this as interest on £250 monthly savings, you need to earn a huge 6.2 per cent (7.75 per cent).
On savings of £100 a month for a year you would need 15 per cent (18.75 per cent) in interest to  match the £100 perk.
The Santander 123 current account benefits those who have already built up savings. It pays 2.4 per cent (3 per cent) on money between £3,000 and £20,000 in the account. You also earn cashback on your monthly bills. But it costs £12 a year to run.