What a washout! New Isa savers earn a paltry 1 pc
A NEW tax year usually heralds a burst of generous offers for savers eager to exploit new tax- free Isa allowances — but this April is fast turning into a washout.
Usually, banks and building societies rush to offer top deals in the so-called Isa season, which straddles the end of one tax year and the start of another in April.
Eager to tempt the early birds seeking to switch a chunk of savings into a cash Isa as soon as possible to earn tax-free interest, they try to outdo rivals with a series of competitive rates.
But this year, major providers are offering risible rates to new customers — with some offering more than a third less compared with 12 months ago.
Halifax pays 1 pc on its Isa Saver Variable to new savers, down from 1.5 pc last year. Santander’s Direct Isa, launched last April at the start of the tax year, paid 1.6 pc. This year, it’s 1 pc for new customers.
Rates have been cut on 130 Isas this year, research from analysts
savingschampion.co.uk reveals. Anna Bowes, Savings Champion director, says: ‘Competition among Isa providers is non-existent, so we are unlikely to see better deals for this year’s cash Isa allowance.’
The average easy-access cash Isa rate for new savers is just 1.02 pc, while on fixed-rate deals it’s 1.41 pc — but you can do better if you shop around.
From this week, savers can earn tax-free interest on more of their money. The Isa allowance for this tax year, which started on Monday, is £15,240 and, once your money is in the account, the interest is automatically tax-free. You don’t have to put the whole lot in — you can also put regular savings into an easy-access Isa each month.
The best rate on easy-access deals is 1.5 pc with National Savings & Investments Direct Isa, Post Office Premier Isa, Skipton BS Bonus Cash Isa and the small Monmouthshire BS Cash Isa 3.
National Savings, available online or by phone, is straightforward, with no withdrawal restrictions and no bonus.
So is the deal by Monmouthshire, although it is only available to existing members and those living near its branches.
The Post Office branch- based account has a 0.85 percentage point bonus for 18 months and restricts you to making two withdrawals a year. With Skipton’s branch or online deal, there’s a 0.5 pc bonus for 12 months.
Separately, Virgin Money Defined Access Isa, available through branches and online, pays a slightly lower 1.41 pc and restricts you to making three withdrawals a year.
Both Santander and Nationwide pay 1.5 pc to some current account customers. HSBC Loyalty Isa also rewards current account holders.
Its best deal is for Advance account holders at 1.5 pc, plus an extra £10-a-month interest.
Nationwide pays 2 pc for savers looking to put a regular amount away each month. On fixed-rate deals, Virgin Money and Albemarle Bank pay 1.65 pc and Yorkshire & Clydesdale banks, Leeds BS and Post Office pay 1.6 pc. The Virgin Money deal is on offer through branches, by post and online, while the Yorkshire & Clydesdale account is only on offer in branches.
For two years, the top rates include 2.1 pc from Yorkshire and Clydesdale banks and Leeds BS.
If you are happy to tie your money up for three years, Yorkshire Building Society pays 2.15 pc through its branches, as well as those of its offshoots — Barnsley BS, Chelsea and Norwich and Peterborough. The account is available online, but not through Yorkshire BS’s own website.
And don’t ignore cash Isas because of the new savings rules — they don’t come into effect until next year. The new personal savings allowance will let basic-rate taxpayers earn their first £1,000-worth of interest in ordinary accounts tax-free from April 6, 2016. For higher-rate payers, it’s £500.
This means that ordinary savings accounts will work practically the same as Isas. The difference will come if and when interest rates go up. A £35,000 sum at 3 pc would put you over the £1,000 tax-free limit.