A major UK bank has delivered a welcome boost for its customers to round off the week.

First direct announced it had raised the rate on its fixed rate ISA to 4.40% AER this week, in a move designed to “help customers make the most of their tax-free cash savings this ISA season”. Should customers deposit the full £20,000 annual ISA allowance, they will pocket £880 in interest after 12 months, first direct confirmed.

Customers also have the flexibility to transfer previous ISA balances into the account. Interest is calculated daily and credited at the end of the fixed term, the bank added.

There is an additional incentive on the table, too.

To qualify for the account, customers must open a first direct 1st Account. Those who do so stand to pocket an extra £200, provided they open the account before July 15, as part of first direct’s enhanced switching incentive.

New customers transferring their current account to first direct can also look forward to a host of attractive perks, including a range of discounts and benefits, access to a 7% interest Regular Saver account, fee-free overseas transactions and ATM withdrawals, a £250 interest-free overdraft and round-the-clock customer service.

Colin Harrison, head of banking and propositions at first direct, said: “We are committed to supporting our customers save for their future, including when it comes to tax-free savings. On top of getting a competitive return of 4.40% on their ISA, customers can also access our 7% Regular Saver Account, which can help maximise interest returns even further.

“This is on top of all the perks we offer on our current account, including the award-winning customer service that first direct is famous for, which is available 24 hours a day, 365 days a year.”

Savers are being urged to review where their money is stashed, as vast disparities emerging between the top and bottom-paying Cash ISA accounts are leaving people missing out on thousands of pounds in tax-free interest. That’s according to fresh analysis from Defaqto, which revealed that savings rates have remained well above 4% since the Bank of England held the Base Rate at 3.75%.

The alert comes as savers face a “use it or lose it” countdown on the current £20,000 Cash ISA allowance before rules are tightened from April 2027, when the limit will drop to £12,000 for under-65s. Experts warn that those who fail to capitalise on this year’s higher allowance could forfeit the chance to shield thousands more in savings from tax.

By placing the full £20,000 allowance into one of the top-paying five-year fixed Cash ISAs, savers could pocket nearly £1,900 more in interest than those opting for one of the lowest-paying deals, according to Defaqto’s latest analysis. The best-paying five-year fixed-rate Cash ISA is currently offered by Nationwide at a rate of 4.60%. The poorest-paying fixed rate over the same period stands at 3.00%, which would leave savers £1,861.03 worse off over five years.

Katie Brain, banking expert at Defaqto, said: “Cash ISAs remain an important way for savers to protect their interest from tax, particularly while savings rates remain relatively high. What’s striking at the moment is the size of the gap between the best and worst paying accounts, which means failing to shop around could cost savers thousands over the long term.

“We’re also seeing more flexibility in the market, with savers able to split their ISA allowance across different products to balance access and returns. But with the Cash ISA allowance due to reduce from April 2027, this year is particularly important for anyone looking to maximise the amount they can hold tax-free.”

Defaqto advised savers to weigh up how likely they are to require access to their funds before committing to longer-term deals, and encouraged consumers to compare rates thoroughly, as discrepancies between providers remain substantial.

Katie added: “Before committing, think carefully about your needs. Consider how likely you are to need access to your money, whether you might exceed your Personal Savings Allowance, and how long you can afford to lock funds away.”

• Consider diversifying your ISA. Utilise a combination of easy-access, fixed and tracker ISAs to strike a balance between flexibility and returns. Check your Personal Savings Allowance. If you’re likely to exceed it, a Cash ISA becomes even more valuable.
• Understand access restrictions. Fixed ISAs often limit withdrawals, while easy-access accounts may have lower rates.

The latest Defaqto data highlights competitive rates across all major Cash ISA categories:

• Fixed-rate Cash ISAs. Rates remain at a premium, with up to 4.60% AER available on longer-term fixes (Nationwide). Even shorter-term deals remain strong, including 4.54% AER for one-year fix (Charter Savings).
• Lifetime ISAs (LISAs). Cash LISAs continue to offer competitive returns alongside the government bonus, with rates up to 4.35% AER (Moneybox).
• Tracker Cash ISAs. A growing segment of the market, Tracker Cash ISAs now offer rates at 4% (Manchester and Newcastle Building Society) with products directly linked to the Bank of England Base Rate.

Defaqto maintains the UK’s most comprehensive financial product database, providing independent expertise, insights, tools and technology to help everyone make smarter financial decisions.