Savers who want the panacea of flexible cash withdrawals, reasonable interest rates and the tax-free wrapper of an ISA have the best options since the financial crisis, according to Moneyfacts.
The average easy-access and notice rates rose in February, with the former now at 2.02% - the highest since February 2009. The latter rose to 2.96%, the best since January of the same year.
It is a remarkable rise from two years ago, when the average easy-access ISA rate was at 0.23%. ISA rates are slightly ahead of the average easy-access account, which pays 1.85%.
The top easy-access cash ISA accounts are from Cynergy Bank, Paragon Bank and Teachers Building Society, which all pay 3.2%, based on an initial lump sum of £20,000.
The average one-year fixed ISA rate rose to 3.56% (its highest since December 2008), while longer-term rates were around 3.72%, the firm said.
However, top rates are ever better. The top one-year fixed offer is tied between Charter Savings Bank and UBL, which both pay 4.01% based on a £20,000 lump sum.
For those putting their cash away for longer, Virgin Money has a two-year fixed paying 4.26% while the 18-month fixed from Santander pays 4.25%.
Rates on cash ISA accounts are crucial in the final weeks of the financial year, with investors encouraged to squirrel away as much as they can in a tax-free ISA.
This year is even more important as changes to capital gains and dividends taxes means there are likely to be more people paying tax next year on investments and savings held outside the tax wrapper.
Rachel Springall, finance expert at Moneyfacts, said: “As a new tax year looms it is encouraging to see interest rates have improved across Cash ISAs for those savers who still need to utilise their ISA allowance.
“The savings market overall is going through a buoyant period thanks to a mix of rate competition, base rate rises and the rush of launching enticing offers for savers looking for a deal before the 2023/2024 tax year begins.”
Savers looking beyond ISAs may also be buoyed, with all variable rates rising for the 13th consecutive month, thanks to competition and back-to-back Bank of England base rate rises. This is the first time this has happened since Moneyfacts started collecting data in 2007, according to Springall.
“It is imperative that consumers take time to check any variable rates they have against the top rates, especially as the average easy access rate is 1.60 percentage points higher than a year ago,” she said.
“There will be accounts out there which have not received the full benefits of base rate rises and it is down to savers to compare and switch. Growing choice in the market means it is more important than ever for savers to consider both unfamiliar and household names, as there are now more overall savings deals on the market since October 2022.”
However, she warned that these rates may not be around for long, with data suggesting the average time these rates are available is 46 days.
“Savers will still need to act quickly to take advantage of a top rate, particularly if offered by a challenger bank that reaches its funding targets, as a deal may only be on the shelf for a short period,” said Springall.
Laith Khalaf, head of investment analysis at AJ Bell, said cash ISAs are a viable way to put money away this tax year as there is “absolutely no doubt that cash is a much more alluring asset today than it has been in the past decade”.
However, he noted that for those with longer-term savings, stock markets remain the best place to put money.
“Holding cash is perfect for short-term needs, but in the long run, returns are likely to be higher from the stock market, albeit with greater volatility along the way. The joy of cash lies in its liquidity, but investors should consider combining this with riskier, return-seeking assets,” he said.