Ideas for ISA Season: Beware the Bait And Switch in ISA Season
As 6th April draws closer, savers’ attention turns to ISAs. Those who are yet to use their 2014/ 15 tax-free allowance have days to do so. Most however are busily shopping around, looking for the best place to squirrel away £15,240; the new ISA threshold for the coming financial year. If you are one of them, you should proceed with care.
Over the past three years, ISA rates have fallen. This has been driven, in part, by banks becoming less reliant on deposits from personal customers, as cheaper funds became available through Government initiatives such as the Funding for Lending Scheme.
But banks and building societies still compete for people’s money, and never more so than in March and April when 75 per cent of the annual change in ISA balances takes place. And it is during these two months that many ISA rates miraculously grow, only to fall again a few months later.
Savers are frequently caught out by the bad practice, and none more so than those who have been loyal to their bank for many years.
Independent research conducted by Savings Champion, on behalf of Metro Bank, analysed savings accounts from ten leading high street providers over the last three years and identified that cutting rates on saving accounts for existing customers below the rates paid to new customers is widespread. 43 per cent of accounts reviewed paid less to existing customers than to new customers. What’s more, 35 per cent of all savings accounts had reduced their rates for existing customers (outside of bonus accounts), with an average reduction of 0.46 per cent, meaning loyal savers have lost out on a whopping £4.7 billion of interest.
What’s worrying is that banks are under no obligation to let customers know if they reduce a rate by up to 0.25 per cent in one go, or 0.5 per cent over the course of the year. In an industry stained by scandal, this only serves to diminish further the trust people have in banks.
But it gets worse. Banks and building societies frequently replace previous year’s issues of ISAs with new accounts with similar names. Customers making a cursory check would not unsurprisingly assume they are getting the rate offered to new customers, but this is not the case. Whether this is intentional or not – customers end up losing out.
ISA Golden rules:
- If you have an ISA, check the interest rate – it may not be the same as the one you were offered when you opened the account.
- Check that your ISA account type hasn’t been changed. Banks and building societies have consolidated ISAs over the last few years and this won’t always be communicated to you.
- If you are considering moving to another provider, check whether that provider has launched a number of new issue accounts. This could indicate that the ISA you have chosen may have had its rate cut, and new issues with better rates offered to new customers.
- If you do choose to move your ISA, make sure you open an account with a provider that will accept transfers from other providers. Your new ISA manager will arrange the transfer and keep your savings earning tax free interest. If you close, or withdraw from your existing ISA, you will lose the ISA benefit of tax free savings.