The battle for cash ISA savers has intensified in the run-up to the end of the tax year, with banks offering increased rates and variable accounts in the spotlight.

One of the market leading instant access accounts is from Halifax which is paying three per cent (AER) on its Cash ISA Direct Reward account for deposits from £1 upwards.

The account allows unlimited withdrawals and deposits up to the current cash ISA limit of £5,100 this tax year. The interest rate of three per cent is the ‘reward’ rate which applies for 12 months. Existing Halifax customers can also receive an additional 0.20 per cent (AER) interest.

Scottish Widows is offering to pay 2.10 per cent (AER) on its E-Cash ISA, an instant access internet banking option. This rate includes a 1.50 per cent bonus rate for the first 12 months.

One aspect of the Scottish Widows account is that the variable interest rate is guaranteed to be no less than 0.25 per cent below the Bank of England Bank Rate until 31 December 2012.

View more information about these accounts and other instant access ISAs »

Interest rates

Variable accounts are gaining considerable attention because of the speculation about whether the Bank of England will raise the Bank Rate – currently at 0.5 per cent. The low Bank Rate has had a negative impact on the rates available to savers.

The Monetary Policy Committee (MPC) has been divided on whether to raise rates, with the majority voting to maintain the status quo. However, three members of the committee voted for increases in the last meeting.

Any increase in the Bank Rate is expected to have the knock on effect of allowing banks to improve the interest rates they offer on savings accounts. Although, it is likely changes to the Bank Rate will be incremental, rather than a sudden large increase.

Fixed Rate

Royal Bank of Scotland is paying 3.70 per cent (AER) for three year fixed rate accounts. The bank’s subsidiary Natwest is also offering 3.70 per cent (AER) as a three year fixed rate.

The RBS 3 Year Fixed Rate Cash ISA pays the 3.70 per cent on deposits starting from the minimum of £1,000 up to £25,000, and 3.80 per cent on deposits over £25,000. This is a limited offer open until 16 March available on a first come, first served basis. A maximum of £5,100 can be invested in a Cash ISA in one tax year, but higher value transfers from existing Cash ISAs are possible.

At maturity the balance of the account is automatically converted to a standard Cash ISA.

For two years, Halifax and Bank of Scotland (both subsidiaries of Lloyds Banking Group) are offering 3.50 per cent (AER) on minimum balances of £500.

As these are fixed rate accounts no withdrawals are permitted. If you need to access the capital invested then the accounts can be closed, but this will incur an interest rate charge depending on when the account is closed.

For example, in the Halifax 2 Year Fixed Rate ISA Saver early closure will mean you lose 180 days’ interest, and in the RBS 3 Year Fixed Rate Cash ISA 270 days gross interest.

View the cash ISAs available through Fair Investment, including structured deposit ISA options »

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