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

There is a new table-topping cash ISA on the market offering a hefty 4.5 per cent interest on your money – but you need a minimum of £10,000 to open it.

Approaching the end of the financial year, it’s not uncommon to see rival ISA providers try to one-up each other by bumping rates by small, incremental amounts, attempting to entice new customers before everyone’s £20,000 annual limit resets.

Across February, the best rates previously included Moneybox’s 4.32 per cent deal and Plum’s 4.3 per cent offer, which the latter has now bumped to 4.38 per cent in another example of that brinkmanship to top the charts.

Additionally, Independent readers can get 4.4 per cent with an exclusive code for a cash ISA with Trading 212, which has been the highest available rate anywhere this month.

But now Prosper has released a 4.5 per cent offer – and it’s a flexible ISA too, meaning you can withdraw current-year contributions and replace them again in the ISA without it impacting your allowance.

However, two important factors to note are that the minimum required amount of £10,000 is needed to qualify and the fact that they are not currently accepting transfers in, meaning you’ll need half of your annual allowance still left and that £10,000 is accessible to move it from elsewhere into the ISA.

As is the case with several of the top ISAs at present, the rate includes a 12-month boost – a “topping-up” of the interest rate which lasts for a year.

At the end of that 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 would be 2.75 per cent.

It’s also worth noting that the BoE is widely expected to cut rates either in March or April, so the current 4.5 per cent headline rate could likely come down accordingly, but this is the case with all non-fixed savings accounts, so savers should be eagle-eyed about opportunities to move their cash to the highest rates possible.

Additionally, as we move closer to the end of the current tax year, we may see other providers similarly inch their rates up in a bid 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, which means any savings products you open with them hold your money with another entity. In this case, deposits for the Cash ISA are held by Griffin Bank Ltd and are FSCS protected up to £120,000.

Any money held within ISAs is not taxable, meaning you would not pay tax on the interest you earn in a cash ISA.

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