Plum boosts interest rates on two ISAs offering customers up to 4.95%

Money app Plum has increased the interest rate on two ISAs, offering new customers up to 4.95%.

The increases, which have been applied to the provider’s Cash ISA and Lifetime ISA, were made to remain “competitive” in the changing savings market following the latest Bank of England base rate reduction. The Cash ISA now pays 4.95% AER, including a 1.66% bonus rate for new customers.

Meanwhile, the new Lifetime ISA customers can enjoy a 4.75% AER, which includes 1.14% bonus rate. Victor Trokoudes, CEO and founder at Plum, said: “Despite the Bank of England decreasing the base rate from 4.50% to 4.25%, the savings market has remained very competitive.”

He added: “In fact, over the past week, we’ve seen providers actually increasing some of their rates.

“Now, some of the most competitive variable rates sit over the 4.8% AER mark, well above the base rate, while the best fixed rate cash ISA offers 4.27% AER.

"At Plum, we want to ensure we pass on as much as possible the interest we receive from our partner banks so our customers get a good deal.”

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Cash Individual Savings Accounts (ISAs) allow people living in the UK to save up to £20,000 a year without paying tax on interest earned.

Plum’s Cash ISA offers an Annual Equivalent Rate (AER) of 4.95% on a minimum deposit of £100. Interest is paid monthly, and up to three withdrawals are allowed per year. After 12 months, the rate will drop by 1.66%, making it key for savers to re-assess their accounts at this point to check they’re still receiving a competitive deal.

Just one easy access ISA exceeds Plum’s deal, and it's offered by Moneybox. The account has a 5.71% AER, and savers can launch the account with a minimum deposit of £500.

Moneybox’s offer includes a 1.51% bonus rate for the first three months, after which the rate will drop. Up to three withdrawals are permitted per 12-month period, and interest is paid on the anniversary.

For savers looking for more flexibility, Trading 212 offers the next best deal with an AER of 4.86%. The deal includes a bonus rate of 0.76% for 12 months, and savers can launch the account with just £1. Interest is paid monthly, and withdrawals are not restricted.

A Cash Lifetime ISA (LISA) is an individual savings account designed to help people save for their first home or retirement faster. People can save up to £4,000 a year in a lifetime ISA, after which the Government adds a 25% bonus of up to £1,000 to the savings.

Based on current LISA rules, withdrawals can only be made to purchase a qualifying first house up to the value of £450,000 or for retirement after age 60. The LISA also must be open for at least 12 months before any withdrawals are made.

If withdrawals are made for any other reason, a 25% Government penalty is applied, which controversially means people could get back less than they put in.

Plum’s Lifetime ISA offers an AER of 4.75%, and savers aged between 18 and 39 can launch it with just £1. Interest is paid monthly, and like most Lifetime ISAs, a penalty of 25% will be applied on any withdrawals that aren’t used for purchasing a first home or retirement.

At the time of writing, Plum offers the market-leading rate, with Moneybox just falling short with an AER of 4.7%. The rate includes a 1.15% bonus for 12 months, and interest is paid monthly.

Mr Trokoudes added: “As always, savers should do their research thoroughly and carefully review the benefits, before choosing a deal that’s right for them. For example, some people may not want to switch regularly, so considering offers with one-year bonuses may be better for them than shorter deals.”