Santander's Flexible Cash ISA (Issue 3) pays an attention grabbing 3.3% annual interest, or 3.5% to some existing Santander customers via the 'Loyalty' version. Is it too good to be true?
Well, yes and no.
The interest rate for the first year is very generous. Santander promises to pay 2.8% (3% for the loyalty version) above the Bank of England Base Rate, so you'll benefit from any interest rate rises. And the rate is guaranteed not to fall below 3.3% (3.5% loyalty version) during that time. But once the year is up the rate will plunge to a normal variable rate, currently 0.5% - awful.
3.3% tax-free equates to 4.12% for basic rate taxpayers and 5.5% for higher rate.
You can invest between £1 and £5,100, but Santander won't let you transfer in an existing cash ISA. Withdrawals can be made online, by phone or via a branch or cash machine. Interest is calculated daily and paid annually on 1 March.
To qualify for the 'Loyalty' version you need to have a current account (and pay in at least £1,000 a month), mortgage or investment with Santander.
In summary, this a great deal provided you transfer elsewhere after a year. If you don't, as Santander is obviously hoping, you'll likely end up earning very little interest thereafter - in which case I'd steer clear. So whether this cash ISA is worthwhile depends on how efficient you are monitoring/transferring your savings.