Trading 212 cuts its ISA to 5%, but it’s still the best tax-free rate on offer

The products featured in this article are independently selected by This is Money’s specialist journalists. If you open an account using links marked with an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.

Savings rates have plummeted since the Bank of England cut the base rate to 5 percent last month.

In the week following the Bank of England’s announcement, This is Money analysis found that at least 100 savings accounts saw their rates cut, including easy-access accounts, fixed-rate bonds and cash ISAs.

But the silver lining is that savers can still find the best savings rates.

Trading and investment platform Trading 212’s Cash Isa* pays a market-leading rate of 5 percent, although this has now been reduced.

Trading 212 launched its Cash ISA in May for new and existing clients.

When it launched, it paid a top rate of 5.2 percent, the highest rate available for an easily accessible tax-free account.

As of today, the rate has been reduced to 5 per cent for new and existing customers. But despite this, it remains the highest cash Isa rate on the market.

That beats Plum Cash, Isa which pays 4.92 percent and Chip Flexible Tax Free ISA* which pays 4.84 percent.

The average easy-access ISA pays a rate of 3.29 per cent according to rate tracker Moneyfacts Compare.

Trading 212 Cash Isa* It is a flexible ISA, which means you can take money out of the ISA and replace it without affecting your ISA allowance, as long as you replace it within the same tax year.

Flexibility can be a useful tool in an ISA to ensure you keep as much of your savings tax-free as possible.

The ISA can only be opened in the Trading 212 app with a deposit starting from £1.

Are you protected by FSCS?

Trading 212 says on its website that any money held in a cash ISA will be protected under the Financial Services Compensation Scheme up to £85,000.

FSCS protects clients’ money up to £85,000 in the event of a firm going bust.

Trading 212 Isa funds are held in linked bank accounts at Barclays, NatWest and JPMorgan.

Trading 212 is an FCA regulated company and an HMRC registered ISA manager, so it can offer a cash ISA to savers despite being an investment app and not having a banking license.

It is not unusual for companies other than banks or building societies to use other institutions to obtain FSCS, but using three different banks is not common.

Previously, clients were unable to see which of the three banks their money would be held in for FSCS protection, but Trading 212 has changed this and clients can now see the percentage of their cash held in each bank that is in interest in the cash tab in the Trading 212 app.

This means that if you already have money with Barclays, NatWest or JPMorgan, you will need to be careful not to exceed the £85,000 limit if you store money with Trading 212.

How does it compare to other major ISA offerings?

Plum

Plum Cash Isa* is the next best easy-access cash ISA option on the market after Trading 212, which pays 4.92 per cent. But it does have more drawbacks.

The rate includes a 0.88 percent bonus for the first 12 months. After 12 months, the rate is reduced to 4.04 percent.

Plum’s ISA allows transfers from other ISA providers, but if you transfer an existing ISA you’ll get 4.04 per cent instead of 4.92 per cent. This is not a flexible ISA.

If your balance falls below £100, or if you make more than three withdrawals in a year, the rate will be reduced to 3 per cent. The minimum deposit required to start saving is £100.

This account can only be opened by downloading the Plum app. The minimum deposit required to open an account is £1.

All money deposited into the Plum settlement remains held by Citibank and is eligible for Financial Services Compensation Scheme protection of up to £85,000 per person.

Chip

Chip Cash Isa* It pays 4.84 per cent. The account is also fully flexible, allowing savers to deposit and withdraw their money instantly without restrictions and without affecting their ISA allowance.

This means that savers can replace any money they withdraw from their ISA without it counting towards their annual ISA allowance, as long as they replace the money in the same tax year.

This account can only be opened by downloading the Chip app. There is no minimum deposit required to open an account.

Chip now allows savers to transfer funds from another cash ISA, making the ISA even more attractive to savers. Previously, this had been a major drawback for savers wanting to transfer an existing ISA.

All money deposited into the Chip settlement remains held by ClearBank and is eligible for Financial Services Compensation Scheme protection of up to £85,000 per person.

Cynergy Bank

Cynergy Bank Cash Isa Paying a rate of 4.82 per cent, this is the best cash savings ISA savers will find and it doesn’t require downloading an app.

It can be opened online on the Cynergy Bank website with a minimum of £1 and allows transfers from another provider. However, it is not a flexible ISA.

All money deposited is eligible for protection under the Financial Services Compensation Scheme of up to £85,000 per person.

Who is Trading 212?

Trading 212 is an investment and trading app founded in 2004. It offers low-cost trading and investing. It is free to have a cash ISA account with Trading 212.

It’s the latest in a series of low-cost investing and trading apps offering a cash ISA that pays an excellent rate.

To get the rate, customers need to tap the ‘earn cash interest’ feature on the app.