Lloyds Bank launches two best buy cash Isa rates

Lloyds Bank has launched two fixed cash Isa deals offering savers tax-free interest of up to 5.05 percent.

Anyone who commits to the bank for two years earns 5 percent, while those who choose an annual fix earn 4.95 percent.

However, an additional 0.05 per cent fee will be added for those who already have a personal bank account with Lloyds, as long as it was opened at least 40 days ago.

The two deals rocket to the top of This is Money’s best buy cash Isa table, led only by OakNorth Bank, offering only 0.01 percentage point more in both cases.

Someone who puts £10,000 into Lloyds’ one-year deal earns £495 in interest, while the two-year fix earns £1,025 over a 24-month period.

Lloyds bank customers will do slightly better in both cases.

To open either account, depositors need a deposit of at least £3,000. It can be accessed and managed online, over the phone or by visiting a branch. Savers can choose to have their interest paid monthly or annually.

Those who hold cash elsewhere can also switch to Lloyds. For this, savers need the details of the Isa from which they want to transfer and the details of their new Lloyds Bank Isa.

To transfer money from a cash Isa, they need the sort code and account number.

Lloyds also promises to pay interest on their money Isa as Isa funds are transferred, provided they are free to move.

For more information on transferring your Isa, check out our guide here.

As with most fixed money Isa deals, there is a cost if you decide to withdraw money from the Lloyds deals early.

Savers are charged the equivalent of 180 days of tax-free interest when they withdraw money, close their account early or transfer money to another ISA.

At the end of the specified term, the account turns into a Instant Cash Isa.

Lloyds currently only pays between 0.9 percent and 1.5 percent on this account, so you should switch at that point.

Should you use a cash Isa?

An Isa is worth having. The personal savings deduction allows £1,000 a year in interest to be earned for base rate taxpayers and £500 for higher rate taxpayers before they are taxed.

Essentially, with rates so much higher, millions of savers will likely face a tax bill on their regular savings.

A base rate taxpayer who earns 5 per cent interest and has more than £20,000 in savings will tap it over the PSA – and for a higher rate taxpayer that figure is £10,000.

Money sheltered in an Isa will provide tax free income even above that £1,000 level and for those building up a long term pot.

Of course, you might also want to look into the stock version of an Isa – how to choose the best (and cheapest) DIY investment Isa.