This is a bank that you’ve probably never heard of but it is currently offering the country’s best cash Isa rates. The Punjab National Bank (International) has become the latest foreign-owned bank operating in London to quietly start offering UK savers top-of-the-range tax-free savings accounts.
This week Punjab bank’s seven UK branches were offering not only the highest-paying instant access cash Isa (2%) – but also the UK’s top-paying five-year fixed-rate Isa at 2.7%.
However, you won’t find it in many best-buy tables because it doesn’t provide the likes of Moneyfacts – which provides Guardian Money’s tables – with details of its products.
In light of the collapse of banks such as Iceland’s IceSave during the financial crisis, is it safe to put your money in the Punjab? Firstly, it’s huge. The third largest bank in India, with more than 78 million customers and a network of more than 6,000 branches.
More importantly, savers have up to £85,000 of their deposits protected by the UK’s Financial Services Compensation Scheme. If the worst happened and the bank collapsed, savers would have exactly the same protection as if a UK bank went down.
In offering the best rates the Punjab is continuing a fine tradition of big-name foreign banks grabbing UK savers’ cash by offering rates that leave British banks in the shade. For many years the First Bank of Nigeria (now called FirstSave in the UK) topped the best buy-tables in similar fashion. Al Rayan Bank - formerly known as the Islamic Bank of Britain - has featured at the top of the Isa tables for some time and has the UK’s best-paying notice account.
The State Bank of India offers the highest rate three- and five- year fixed-rate cash Isas according to Moneyfacts, paying 2.5% and 2.3% respectively. Unlike the Punjab, which requires savers to open its Isas in person at its branches, the State Bank of India lets UK consumers open accounts online.
The Punjab’s arrival - and more likely the start of the new tax year - should be the cue for all savers to dig out their paperwork to make sure they are getting good rates on their Isa, because it is highly likely that the top-paying account of a year ago may not be delivering the best returns today.
In recent months banks and building societies have been quietly cutting or changing rates – mostly downwards. Nationwide is by no means alone in cutting rates on nearly 30 of its savings accounts by as much as 0.5%, despite no change in the Bank of England base rate for more than six years. The rate on the building society’s Cash Isa 2 has been reduced from 1% to 0.5%, while the rate on its e-Isa has fallen from 1.25% to 0.75%. This is mirrored across the savings industry.
Rachel Springall, of Moneyfacts, says the banks have generally been cutting rates so as not to be inundated by customers. “Best buy rates are hard to come by and so as soon as a provider makes the top spot they will be faced with an onslaught of savers trying to get that deal. This results in the provider either pulling the product entirely as it hits its subscription limit, or cutting the rate so it is no longer top,” she says.
What many people don’t realise is that it is possible to transfer funds held in a cash Isa to another provider. So if your savings aren’t getting the rate the deserve, where should you move your money?
As stated above, the Punjab is paying the best instant access rate – 2% – on balances of £1 upwards. You have to go into a branch to open it, but then can manage it online. Be warned, this is a variable rate so could be cut at any time.
Al Rayan Bank Notice Cash Isa is paying 2.02% on balances of £250 and above. Customers have to give 120 days’ notice if they want to make a withdrawal. It is paying a quarter more than the next highest – the 1.6% paid by the Skipton building society.
The Punjab also dominates the fixed-rate cash Isa market – paying the top 2.7% on its five-year fix. The minimum balance is £1,000 and you have the option to get your money back early with the loss of interest. The next highest paying is the State Bank of India – 2.5% for five years, although there is a high minimum investment of £15,000.
There’s a strong argument against tying your money up for five years at 2.5% when you can get 2% instant access – or 1.9% fixed for 12 months – again from Al Rayan (minimum £1,000). The Shawbrook is paying 1.7% fixed for a year but on a minimum of £5,000.
All the above products allow transfers in. To move your Isa savings don’t withdraw them; instead apply to the lender to which you want to move the money – it will manage the transfer.
