Lloyds Bank launches two best buy cash Isa rates

Lloyds Bank has launched two fixed cash Isa deals that offer savers tax-free interest of up to 5.05 per cent.

Anyone fixing with the bank for two years will earn 5 per cent, while those who opt for a one-year fix will earn 4.95 per cent.

However, an extra 0.05 per cent rate is 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 fire to the top of This is Money’s best buy cash Isa table, with only OakNorth Bank ahead, offering just 0.01 percentage points more in both cases.

Someone stashing £10,000 in the Lloyds one-year deal will earn £495 in interest, while the two-year fix will bag a £1,025 return over the 24 month period. 

Lloyds banking customers will do slightly better in both cases.

To open either account, savers will need a minimum £3,000 deposit. It can be opened and managed online, over the phone or by visiting a branch. Savers can choose to have their interest paid monthly or annually.

Those with cash Isas held elsewhere, can also transfer to Lloyds. To do so, savers will need the details of the Isa they want to transfer from and the details of their new Lloyds Bank Isa. 

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

Lloyds also promises to pay interest on their cash Isa while Isa funds are being transferred, provided they are free to move.

To find out more about transferring your Isa, check out our guide here.

Like most fixed cash Isa deals there are charges if you decide to withdraw money early from the Lloyds deals.

Savers will be charged the equivalent of 180 days’ tax-free interest when making withdrawals, closing their account early or transferring money to another Isa.

At the end of the fixed term period, the account will change to an Instant Cash Isa. 

Lloyds is currently only paying between 0.9 per cent and 1.5 per cent on this account, so you’ll need to switch when this time comes.

Should you use a cash Isa?

An Isa is worth having. The personal savings allowance allows £1,000 a year of interest to be earned for basic rate taxpayers and £500 for higher rate taxpayers, before being taxed.

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

For example a basic-rate taxpayer earning 5 per cent interest, having more than £20,000 in savings will tick them over the PSA – and for a higher-rate taxpayer, that figure is £10,000.

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

Of course you may also want to look into stocks and shares version of an Isa – how to choose the best (and cheapest) DIY investing Isa.