Focus on: start saving tax-free and pocket a tenner
Savers who have yet to use this year's cash ISA allowance can get a £10 cash incentive if they open an account with ING Direct.
In a bid to attract new business, from Monday June 11, the Dutch bank is offering new customers a cash payment of £10 in return for opening its Direct Cash ISA, which pays a tax-free guaranteed rate of 3.00% for 12 months.
But, is it worth it? Here, we take a closer look to see if this could be the account for you... .
What's the deal?
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ING Direct's Cash ISA will have £10 paid into their account.
The account can usually be opened with a minimum investment of just £1, but you only qualify for the cash incentive if you pay in £500.
If you wanted to invest the maximum £5,640 into a cash ISA this tax year, you would only have to pay in £5,630 to this account, as the £10 bonus would then take you up to the maximum investment limit.
The rate on this account is guaranteed to be at 3.00% for the first 12 months, after which it reverts to ING Direct's standard cash ISA variable rate, which is currently 1.00%, so you may want to move your money at the end of this period.
You can make withdrawals whenever you want, but bear in mind that if you invest your full allowance and then take money out, you cannot subsequently make any further deposits into the account that year.
The ISA can only be operated by internet or telephone, so it won't suit those looking for branch access. Interest on this account is paid monthly, which could be useful for savers wanting to supplement their income.
While the 3.00% rate on this account is competitive and the £10 incentive tempting, it is possible to earn much higher rates of interest with alternative cash ISAs.
Cheshire Building Society's Direct Cash ISA Issue 3, for example, pays a market-leading 3.35% annual interest tax-free on a minimum investment of £1,000. This rate includes a 2.35% fixed bonus which is payable until the end of November next
If you were to invest your full cash ISA allowance of £5,640 in this account, after a year you would have earned £188.94 in interest.
If you invested the same amount in the ING Direct account, you would have earned £169.20 in interest after a year, nearly £20 less than if you had put your money into the Cheshire account.
Even when you factor in the £10 giveaway, you would still be nearly £10 better off if you'd put your money into the Cheshire account.
Remember too that the ING Direct account does not accept transfers in from existing ISAs, so it will not suit savers who prefer to keep their ISA savings with the same provider.
It is also worth bearing in mind that the Financial Services Compensation Scheme does not apply to non-UK banks. Eligible depositors are covered by the Dutch Central Bank's Deposit Guarantee Scheme up to €100,000.
What's the verdict?
While free money is not to be sniffed at, if you are planning on using your full ISA allowance this year, you may be better off going for a higher interest paying ISA with an alternative provider instead.
For savers with only small sums to invest, however, if you are planning on paying in the minimum £500 to qualify for this offer, then the £10 bonus looks much more appealing, as the amount of interest you will earn on this amount will be much lower than if you are investing bigger sums.
If you invest in a cash ISA this tax year which includes a bonus in its rate, always make a note of when the bonus disappears.
If you don't move your money at the end of the bonus period, then the chances are you will end up earn a paltry rate of interest.
If you don't want to keep moving your money around, then you may be better off opting for a cash ISA which doesn't include a bonus in the rate.
For example, Virgin's Easy Access Cash E-ISA, which is provided by Northern Rock, pays 2.85% annual interest tax-free, and can be opened with a minimum investment of £1. This rate does not include a short-term bonus and you can transfer in money held in existing ISAs.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.