Newcastle Building Society launches 5% Isa

What’s the deal?

A cash individual savings account (Isa) paying a fixed rate of 5 per cent for five years from Newcastle Building Society.

The mutual’s Five Year Fixed Rate Isa (Issue 1) is available to savers who have yet to use their 2009/10 tax-free allowance as well as for Isa transfers. Switches from other banks and societies as well as from other Newcastle Isas are accepted.

Savers can access their cash by giving 90 days’ notice, without penalty. The minimum investment is £1.

Is this good?

Only a handful of cash Isas offer higher rates, according to Defaqto, the research company, and those have catches – such as the requirement to take out other financial products or limiting investments to monthly contributions of a few hundred pounds.

Newcastle’s new account is the top “catch-free” cash Isa rate and pays a percentage point or more above other fixed and variable rates. It offers a record premium to the 0.5 per cent base rate, and its launch is an example of how competition is picking up again in the savings market.

David Black, Defaqto banking consultant, says the account offers “the best of both worlds” – a top rate with access. The fixed return gives protection from rate reductions, while the 90-day notice period means savers are not locked in for the full five years.

As well as being able to take cash out early, accountholders can switch to another provider if a better deal comes along – or when rates improve.

Any catches?

Other Isa rates may well rise above 5 per cent over the five-year term, in which case savers would be better off switching.

The account can only be opened online. And such a competitive rate may not remain on offer for long, so savers should not delay with their applications.

Newcastle is not committing to offering the same high rate on Isa “top-ups” – the extra £1,500 the over-50s are entitled to invest in their cash Isas from October.

What are the alternatives?

Other Isas pay up to 4.05 per cent fixed or about 3 per cent for variable rates, according to Moneyfacts, the rate service.

Leeds Building Society has a five-year fixed-rate Isa paying 4.05 per cent that allows savers to withdraw up to 25 per cent of their cash without penalty or notice. Both Leeds and Halifax also have three-year fixed rates at 3.75 per cent. Newcastle has a variable-rate Isa paying 3 per cent, including a 1 per cent bonus for 12 months, while Intelligent Finance pays 2.75 per cent on its instant access Isa.

How do I find out more?

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