ING Direct launches 6% Isa

By SASCHA HUTCHINSON
Updated:

 

ING Direct has made its first foray into the cash mini Isa market, with an account paying 6.55% for the first six months and then dropping to 5.13%.

It means that savers will effectively earn a 6% AER over the 12 months if they invest the full £3,000 for the year. However unlike other Isas, savers will not be able to transfer existing Isa funds into the account, meaning they only earn the rate on this year's Isa allowance.

But the new account is likely to put ING Direct back in the best buy tables. Its online saver account, which was launched in 2003 amid with a fantastic rate, lost its best buy status after the bank left the rate at 4.75% following the two most recent rate rises. The account attracted more than one million customers.

ING Direct will be hoping that the best buy Isa rate will entice new customers back to the bank. The next best Isa rate is 5.81% from NS&I but this is only for customers who deposit a minimum of £1,000. Kent Reliance pays 5.71% and allows customers to transfer their existing Isa savings into their account.

The bank's refusal to pass on rate rises provoked an unprecedented response from This is Money readers who vowed to switch their savings accounts. Recent reports said that the ING Direct call centre was having difficulty keeping up with the demands by customers to close their accounts.

The new 6% Isa rate may see the troubled bank claw back some credibility. It is the first foray for the Dutch online bank into the Isa market.

In recent months the bank has launched several new accounts, including an identical online savings account that pays 5.65%, only available to existing customers. ING Direct transformed this account into an instant access account to avoid people switching away from the bank.

They also launched a fixed rate account, again reserved for existing customers, and last year launched their first mortgage.

This is Money says: There's no doubt that 6% is a great Isa rate, but savers should remember that this is a complicated deal and the rate is not guaranteed. Only the rate of 6.55% for the first six months is guaranteed. After that it reverts to 5.13% variable, but that could be lowered at any time.

In other words, this is only the equivalent of a 6% AER deal if ING Direct don't lower the rate from 5.13% after the first six months.

Another major drawback of this Isa is that you cannot transfer in your existing Isa funds. If savers choose to open an ING Direct Isa, they need to remember to transfer back out of it next year, or they'll only earn 5.13%.

The best deal at the moment is with Newcastle Building Society, which pays 6.1% guaranteed until October 2008.

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