Best cash Isa rates: Marcus Bank fails to spark a tax-free rate war


No green shoots for Isa savers as the new tax year sees saving rates fall as Marcus fails to spur a tax-free rate war

  • Rates on easy-access Isas have fallen from 0.46% in March to 0.41% 
  • March and April is usually ‘Isa season’ when banks compete for savers’ cash  
  • Rates are now at an all-time low following the pandemic and are not improving 

The new tax year and the launch of Marcus Bank’s Isa has failed to spur a revival in tax-free savings rates, with returns actually lower than they were at the start of March.

While 12 new Isa accounts, including the one from Marcus, have been launched since 6 April compared to six which have been cut or shelved, figures from the analyst Savings Champion reveal savers have been handed little joy over the last month. 

Despite March and April historically being a time when banks competed for savers’ cash ahead of the end of the tax year, rates have fallen this year.

Barren landscape: Spring is normally fertile ground for tax-free savings rates but returns have actually fallen since this March

Barren landscape: Spring is normally fertile ground for tax-free savings rates but returns have actually fallen since this March

The rates paid on the top five easy-access, one-year fixed-rate and two-year fixed-rate Isas have actually fallen between the start of March and this week.

One-year fixed-rate Isa rates have fallen from 0.49 per cent at the start of last month to 0.44 per cent on Tuesday 13 April, and rates on two-year Isas from 0.6 per cent to 0.58 per cent.

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Meanwhile rates on easy-access tax-free deals have fallen from 0.46 per cent to 0.41 per cent over the same period, despite two best buy accounts being launched during that time.

The first day of the new tax year, 6 April, saw Goldman Sachs-backed Marcus Bank launch an easy-access Isa paying 0.4 per cent, its first new savings account in just over a year.

But while last Friday saw Paragon Bank beat it with a 0.41 per cent paying ‘limited edition’ easy-access Isa, it has failed to spur a revival in tax-free rates, which are currently at record lows.

This is likely because Marcus only dipped its toe into the Isa market, given its account is open only to existing customers and does not accept previous years’ Isa transfers. 

How have savings rates changed since the new tax year started? 
Account type  Top 5 average rate 1 March 2021   Top 5 average rate 1 April 2021 Top 5 average rate 13 April 2021
Easy-access Isa 0.46% 0.41%  0.41% 
One-year fixed-rate Isa  0.49%  0.43%  0.44% 
Two-year fixed-rate Isa  0.6%  0.58%  0.58% 
Source: Savings Champion 

Experts suggested the move was to try and cannibalise existing Marcus deposits, meaning it is not directly competing with other banks at the top of the best buy tables.

Paragon’s account does accept transfers, meaning it is unlikely to keep the rate at 0.41 per cent for long.

And aside from the Marcus announcement and two moves from Nationwide Building Society, the end of the tax year saw very few moves from major names.

Anna Bowes, co-founder of Savings Champion, said the lack of meaningful competition at the start of the new tax year was ‘disappointing’.

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Instead the top of the best buy tables are filled with smaller banks unable to sustain a major volume of money. Most of the new accounts launched since 6 April paying competitive rates come from these banks.

Charter Savings Bank launched a one-year fixed-rate bond paying 0.45 per cent on 7 April, the second-best rate in our tables. Meanwhile Close Brothers launched two, three and five-year fixed-rate bonds on the same day, the three-year version of which paying 0.7 per cent was a best buy.

The lack of supply has been matched by a lack of demand, with cash Isas proving less popular than their non-tax-free cousins over the last 12 months, which have seen record amounts of money saved.

Just £1.806billion more was held in cash Isas in February 2021 compared to the same month last year, according to the latest figures from the Bank of England, with money actually pulled out of tax-free accounts in the second half of 2020.

And in some cases, it is not even worth shopping around. Last month, This is Money reported figures from Savings Champion which revealed the average ‘old’ easy-access Isa paid more than the average on-sale one by a larger amount than had been seen in any March since 2013.

The average old account paid 0.37 per cent and the average new one 0.22 per cent, largely weighed down by the pitiful rates paid by Britain’s biggest banks. 

But Anna Bowes added: ‘It’s still worth shopping around for the best Isas if you already pay tax on the interest from your savings, or you may do if things change in the future. 

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‘Isas are still valuable for many so making sure you get as much tax free interest as possible is important’.





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