New cash ISA emerges with best rate on the market – but there’s a catch

There’s a new desktop cash ISA on the market offering a high interest rate of 4.5 per cent on your money – but you need a minimum of £10,000 to open it.

As we approach the end of the financial year, it’s not unusual to see rival ISA providers try to outdo each other by increasing rates by small, incremental amounts, trying to attract new customers before everyone’s £20,000 annual limit resets.

During February, previously best rates included Moneybox’s offer of 4.32 percent and Plum’s offer of 4.3 percent; this offer has now risen to 4.38 percent and topped the charts as another example of this fearful attitude.

Moreover, Independent readers will be able to get 4.4 per cent, the highest rate available anywhere this month, with a special code for a cash ISA with Trading 212.

But now Prosper has released an offer of 4.5 per cent – and it’s also a flexible ISA, meaning you can withdraw the current year’s contributions and replace them back in the ISA without affecting your allowance.

However, two important factors to consider are that £10,000 is the minimum required to qualify and the fact that they do not currently accept transfers, meaning you still need half of your annual allowance remaining. And £10,000 is available to move the ISA from elsewhere.

As with many of the best ISAs now, this rate includes a 12-month step-up, i.e. a year’s worth of interest rate “top-up”.

At the end of this period the rate will be 1 percentage point lower than the Bank of England’s base rate, so if the bank rate is 3.75 per cent as it is today, your cash ISA rate will be 2.75 per cent.

It’s also worth noting that the BoE is widely expected to cut rates in March or April, so the current headline rate of 4.5 per cent is likely to fall accordingly, but this applies to all non-fixed savings accounts, so savers need to be wary of opportunities to move their cash to the highest possible rates.

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Additionally, as we get closer to the end of the current tax year, we may see other providers similarly increase their rates to capture more of the usual late-March rush to open a new ISA before allowances reset.

Prosper is a wealth platform rather than a bank; This means that the savings products you open with them keep your money at another organization. In this case Cash ISA deposits are held by Griffin Bank Ltd and are FSCS protected up to £120,000.

Any money held in ISAs is not taxable; This means you won’t pay tax on the interest you earn on a cash ISA.

The government increased the level of tax payable on interest earned above the thresholds in the November Budget; so basic rate taxpayers will pay 22 per cent (from 20 per cent), higher rate 42 per cent (from 40 per cent) and additional rate 47 per cent (from 45 per cent). The changes will come into force in April 2027.