Savers aged 16 and over can open the Online Bonus ISA (Issue Three) with just £1 and withdrawals are allowed.
Commenting on the deal, Caitlyn Eastell, a spokesperson at Moneyfactscompare.co.uk, said: “Principality Building Society has increased the rate on its Online Bonus ISA paying 5.05 percent this week, taking a position within the top 10 of its sector.
“Savers who are yet to use their tax-free savings allowance might be tempted by this deal, which includes a 0.95 percent bonus for 12 months.”
However, Ms Eastell noted: “Investors may wish to review this again down the line once the rate drops.
“Overall, this earns an Excellent Moneyfacts product rating and a prominent place in our top tables.”
Cash ISAs are a popular savings option, as these accounts enable people’s money to grow without having to pay tax on the interest above the Personal Savings Allowance (PSA).
Easy access Cash ISAs are a more flexible investment option, as these allow savers to make payments and withdrawals with minimal restrictions and with small opening deposit requirements.
But while Principality Building Society may be offering a more appealing deal, it isn’t topping the table just yet. Moneybox is currently offering a market-leading AER of 5.09 percent. A minimum deposit of £500 is needed to open the account, interest is paid on the anniversary, and up to three withdrawals are permitted without losing interest.
For those looking for more freedom, Zopa’s Smart Saver offers an AER of 5.08 percent and can be opened with a minimum of £1. Interest is paid monthly and withdrawals are permitted at any time.
Coventry Building Society and Marsden Building Society are also each offering AERs of 5.05 percent, however, Coventry BS’s account permits just four withdrawals without losing interest.
Just £1 is required to open Coventry’s account, while a slightly larger deposit of £1,000 is needed to launch Marsden’s.
Commenting on the market, Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “Savers may be delighted to see that Cash ISAs have improved over the past year and providers have started reviewing their ranges for a new ISA season.
“As interest rates rose sharply last year, those savers who decided to invest their cash outside of an ISA wrapper may breach their Personal Savings Allowance (PSA). Cash ISAs could be a better option, particularly for higher-rate taxpayers with a large nest egg.
“The longer-term tax-free wrapper is the benefit of a Cash ISA, protecting returns regardless of interest rate rises. Despite its introduction in April 2016, the PSA limits have not been increased and interest rates are much higher.
“As we have seen over time, the top Cash ISAs across both the variable and fixed markets tend to pay slightly less than their taxable counterparts, but it is worth noting not every provider offers a Cash ISA and there are administration costs for those which do offer an ISA.”
She added: “It’s an exciting year ahead for Cash ISAs and it will be interesting to see if providers attract deposits.”