In Depth

Isa deadline: the 'loyalty Isas' worth switching for

With Isa rates low but banks desperate for current accounts, there are deals for those in the know

Banks and building societies are at war over current account holders at the moment with many trying to grab market share. As a result there are some hugely attractive current accounts out there offering you up to 5 per cent interest, cashback and perks.

With Isa season now well under way, several banks are also offering their current account holders special Isas. Some of these deals are impressive, so should you switch your current account in order to grab an Isa deal?

HSBC is offering monthly cash payments to its HSBC Advance customers who take out a Loyalty Cash Isa with them. The Isa pays a rate of 1.5 per cent and is instant access. Already that matches the best rates you can get on an instant-access Isa. But, on top of that, if you maintain a balance of at least £300 or pay in a minimum of £25 a month, HSBC will deposit £10 a month into your Isa (that money doesn't count as part of your Isa allowance). If you held your full £15,000 Isa allowance in the account that amounts to a return of 2.3 per cent (£345), which is far more than you'll get on any other instant-access Isa.

To get that you'll need to hold an HSBC Advance account. The account is free but you have to be able to pay in £1,750 each month. If you can do that, on top of the Loyalty Isa offer you'll also get access to a 6 per cent regular savings account and discounts on HSBC mortgage fees and loans.

Another option comes from Santander which is offering its 123 Current Account holders a special 1.5 per cent interest rate on its instant-access Direct Isa. It’s the same rate as HSBC but you don't get the £10 a month bonus. Instead, Santander's 123 Current Account pays interest (of up to 3 per cent depending on your balance) and cashback on some spending, which you won't get with HSBC's Advance account.

Assuming you invested the full £15,000 into the Isa and held at least £5,000 in your current account you would earn more with the 123 account than you would with HSBC's offer. You would earn £373 in interest plus cashback on some of your spending. There is a catch though, the 123 account has a £2 monthly charge.

If you don't want to switch current accounts to HSBC or Santander then you can still get a good Isa deal. First, check whether your own bank is offering any loyalty rate on its Isas. If not, there are several accounts paying 1.5 per cent on instant access Isas including NS&I and the Post Office.

If you have a lot of money sitting in savings I'd seriously consider switching to Santander's 123 account. Then I'd ignore the instant-access cash Isa and go for their two-year bond. It pays 2 per cent to customers who have the 123 account – that's one of the best rates available. Then you can earn 3 per cent on balances between £3,000 and £20,000 sitting in your current account. This beats any rates on offer in standard savings accounts.

As for the HSBC Advance account, it’s a good choice if you want to start building an Isa saving habit, or only have a small amount of savings as the £10 a month will really boost your return. You can save as little as £300 and get £120 plus interest. But, not many people can guarantee they'll deposit £1,750 into their current account each month – you'll need to be earning at least £27,000 a year.

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