Money Insider: Impressive ISAs from high-street heavyweights

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The Independent Online

Santander and Nationwide have set the early pace in the battle for ISA supremacy. The ISA market has been picking up during the last fortnight, but this week the level of competition moved up a gear as high street heavyweights launched accounts.

The new Flexible ISA from Santander offers a triple whammy for savers, with a best buy rate, the comfort of a guaranteed minimum rate plus unlimited penalty-free instant access. The impressive 3.5 per cent rate is guaranteed for 12 months, but because the account has been structured to pay 3 per cent above base rate, if the Bank of England decides to increase rates in the next 12 months, Santander customers will benefit from such a move too.

A balance of £5,100 at 3.5 per cent will give you a tax-free interest return of £178.50 over the course of a year, while £3,600 will generate a healthy £126.00. When you weigh up that the best rate for a two year fixed rate ISA is 3.6 per cent with Aldermore and the best one year fix is 3.33 per cent from Bank of Cyprus UK, it emphasises just how competitively priced this account is.

The downside of this ISA is that it doesn't allow transfers in, so if you've got tax-free funds accumulated from previous years, you'll need to look elsewhere. This account is likely to prove popular, and if previous ISA seasons are anything to go by, it may not be around for long.

Nationwide Building Society also unveiled a new range of ISA products this week, the pick of the bunch being a three year ISA with a fixed rate of 4.4 per cent. The rate is currently a massive 0.4 per cent higher than any other products over this term.

There's a monthly interest option of this product available at 4.39 per cent AER, and with transfers in permitted, this represents an excellent opportunity for anyone looking to supplement their income.

Savers have really been under the cosh over the last 18 months, having to contend with poor rates and soaring inflation, so let's hope these attractive deals spur other ISA providers to retaliate.

Overdraft costs soar by 10% in two years

Over the last couple of years, much of the focus on the current account market, from the perspective of both consumers and the OFT, has been on the level of unauthorised bank charges and penalty fees.

However while many have been arguing about the fairness of such charges and whether they should be refunded, the cost of authorised borrowing on current accounts has been steadily increasing in the background.

Back in February 2008 someone who was overdrawn by £1,000 for six months of the year would have paid £69.25 in interest charges, which equates to an average interest rate of 13.85 per cent. Moneynet research reveals that the same scenario today would see these costs increased by more than 10 per cent, as £1,000 for six months would now set you back £76.63 (an average interest rate of 15.32 per cent).

No doubt lenders will point to increased risk and default levels as a result of the spike in unemployment seen during the recession. However as and when the economy returns to a stronger footing and unemployment falls, I'm not convinced that the cost of borrowing will recede.

The figures above don't include the recent rate increases announced by Barclays, which come into play at the end of April, and I fear we may yet see more providers follow their move in the months ahead.

With savings rates falling whilst the cost of loans, credit cards and overdrafts are heading in the opposite direction, it's no surprise that many people are currently disillusioned with financial services providers in the UK.

Mortgage latest

ING Direct stormed towards the top of the best buy tables this week with a new three-year fixed rate mortgage at 4.14 per cent to 75 per cent loan to value with a fee of £595. It will go head to head with the Yorkshire Building Society three-year fix which has the same rate but a slightly lower £495 fee.

The number of mortgages available has been growing steadily over the last few weeks, but the market remains subdued, with a substantial dip in mortgage lending in January. Lenders are still concerned with the fragile state of the economy and high unemployment, so many are still reluctant to lend to applicants with anything less than a perfect credit score.

Andrew Hagger is a money analyst at Moneynet.co.uk

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