Savings provider increases interest rate on Cash ISA to ‘market-leading’ 5.18%

Smart money app has increased the interest rate on its market-leading to 5.18% to help customers “grow their money”.

Cash ISAs have become increasingly popular over the past years with higher . These accounts allow people to save up to £20,000 a year tax-free.

Savers can launch Plum’s easy access ISA with a £100 deposit and interest is paid monthly. The includes a 1.39% bonus for 12 months, after which the rate will drop to 3.79%.

Easy access accounts also provide savers with more flexibility to dip into their pots when needed – although some slightly restrict this. Plum’s account allows up to three withdrawals in one year without penalty. After the fourth, the will drop to 2.5%.

Average easy access ISA rates have fallen month-on-month to 3.24% according to Moneyfactscompare, making Plum’s deal notably more competitive for savers seeking higher returns.

Victor Trokoudes, CEO and founder of Plum commented: “Here at Plum, our goal has always been to give customers the best tools we can to grow their money for life. With last week’s inflation news and sticky higher rates on mortgages, it’s essential that people make sure their savings are working as hard as possible.”

He added: “Cash ISAs are a great option right now as they couple high on savings with tax benefits, which is important as many people are moving automatically into higher tax brackets following the Government’s decision to maintain the freezing of tax thresholds till 2028.

“With Black Friday this week too, we wanted to make sure we give people a particularly strong reason to save income tax-free, instead of unnecessarily spending. We’re pleased to be offering the current highest variable rate on the market.”

Rachel Springall, finance expert at , told Express.co.uk that it’s “encouraging” to see Plum increase the rate on its Cash ISA to grab a table topping position this week for new customers.

She continued: “Savers who want flexibility with their money must be mindful that the account limits withdrawals and a breach will result in a drop to the interest paid. Those savers who want to transfer any existing ISA pot to Plum can do so, but they will not get the bonus rate applied, unlike fresh deposits.”

However, she warned: “As the Cash ISA carries a hefty bonus for 12 months for deposits, it is essential savers may a note to review the account before this expires, and be sure to transfer their pot elsewhere if they can do better (when the rate drops to 3.79%).

“Savers should never encash their Cash ISA if they want to keep their pot tax-free, instead they need to make an ‘ISA transfer’ elsewhere, but be mindful that not every provider accepts transfers in.”

Ms Springall pointed out that savers will need to open a Plum account via a mobile app, but once they do, the account is “quick and easy to manage”.

She added: “Savers can make regular payments into their pot, but in addition, Plum offers savers a top-up pocket that sits alongside their savings account which connects to a current account to make regular deposits on behalf of a customer. This is a great feature for those who want to save something each week but just don’t have the time to do so. This cash can easily be moved into the Cash ISA, or if its needed, back into someone’s current account.”

While Plum may be offering the top in the easy access Cash ISA sector, competition doens’t fall too far behind.

For those needing more flexibility with withdrawals, Trading 212 offers an Annual Equivalent Rate (AER) of 5.17 percent. There are no withdrawal restrictions and interest is paid daily.

Placing behind with full withdrawal access is Chip, which offers an AER of 4.58%. Savers need a minimum deposit of £1 to get started and interest is applied monthly.

Commenting on the market, Ms Springall, said: “Easy access savings accounts continue to be the evident casualty of cuts by the Bank of England, and the average rate now stands at its lowest point since September 2023, when it was below 3% (2.95%).

“It is worth pointing out that there will be savers earning even less than this and, worryingly, some savers will not be earning a single penny on their cash.”

According to the Bank of England,.

Ms Springall continued: “It will be up to consumers to make time to move their hard-earned cash into an account which not just pays interest, but also provides a real return against the eroding impact of inflation, which is expected to stay above 2% for some time yet.”