Spotlight On: Sainsbury's 12-month cash ISA

The deal

Sainsbury's Finance has launched a 12-month cash ISA, paying 2.6 per cent gross AER.

The good points

Putting savings in a cash ISA means getting interest-free returns on up to £5,100 each tax year. The 2.6 per cent interest paid is reasonable given you have instant access.

The bad points

The interest offered is only for 12 months – after a year, the interest rate paid out slumps to a pathetic 0.5 per cent.

Conclusion

There are slightly better instant-access ISAs out there, with Cheltenham & Gloucester, Birmingham Midshires and the AA all paying 2.7 per cent.

But all the leading rates include introductory-year bonuses. This means if you don't switch after 12 months, your cash will end up earning little, although none of the others looks to be as poor as Sainsbury's.

If you can lock your savings away, you can earn up to 3 per cent in a fixed-rate ISA with Aldermore Bank, which is worth considering.