Savers face sneaky shift into accounts paying just 0.25pc

SAVERS who took out popular cash Isas a year ago are being dumped into accounts paying just 0.25 per cent — with banks using a new twist on an old ruse to penalise those who fail to switch deals.

After the financial crisis, it became common for the best Isa rates to include a short-term bonus to boost the return. Typically, such bonuses dropped away after 12 months, and sometimes the rate would fall to 0.5 per cent, but rarely any lower.

This year, however, savers will see their money shunted into an entirely separate account with even worse interest rates. Three of the largest providers, Halifax, Lloyds and Santander, will all shift Isa customers into low-paying accounts that are not on general sale.

If you opened a Halifax Isa Saver Variable a year ago, when the interest rate was 1 per cent, after 12 months you will be automatically moved into its Instant Saver Isa where your rate plummets to a paltry 0.25 per cent. On a £15,000 savings pot, your interest will drop from £150 a year to £37.50.

The same fate awaits you in the bank’s Online Isa, which paid 1.05 per cent. With £15,000 in the account, the £157.50 interest you earned over the past 12 months will nosedive to £37.50 if you leave your money with the bank for another year.

With Lloyds Bank Cash Isa Saver 9 you will find yourself moved to its Instant Cash Isa after a year, where the rate is also a measly 0.25 per cent.

The Instant Cash Isa is not generally on sale and the rate can be tricky to find on its website.

Santander savers will also find themselves suffering a sharp drop.

If you opened its Direct Isa account in February or early March last year you will have earned 1.3 per cent as a 123 customer and 1 per cent if you are not.

However, after 12 months, you will be pushed into the bank’s Isa Saver account which has seen its rate cut twice in the past year.

This time last year, the Isa Saver paid 0.5 per cent on balances up to £10,000, 1 per cent if you had between £10,000 and £25,000 and 1.5 per cent for balances over £25,000.

This made it an attractive account for those who had built up large balances with previous years’ cash Isas with the bank.

However, on March 30, the extra 0.5 per cent you earned for having £25,000 plus disappeared and next week rates are being shaved yet again.

From February 29, they will drop to 0.25 per cent on balances up to £10,000 and 0.75 per cent for higher amounts.

All three banks will let you switch into their current offerings, but these can be much lower than the average 0.81 per cent on offer from all major providers.

Halifax pays 0.6 per cent on its Isa Saver Variable. So does Lloyds Bank Cash Isa Saver, unless you have more than £40,000 in your account when the rate creeps up to 0.65 per cent. The current Santander Direct Isa, issue number 12, pays 0.8 per cent or 1 per cent if you are a 123 customer.

There are better rates available elsewhere. Virgin Money’s Defined Access Isa pays 1.41 per cent although it limits you to three withdrawals a year.

Kent Reliance pays 1.35 per cent with no withdrawals restrictions. Yorkshire Building Society and its offshoots Chelsea and Barnsley all pay 1.35 per cent on their Triple Access Isa, although restrict access to your money to three days a year.

To switch your cash Isa to a better deal, check that your chosen provider accepts transfers from other providers. Not all do. For example, National Savings & Investments pays 1.25 per cent but won’t let you transfer old Isas into the account.

If you are transferring to a new provider, fill in its transfer form and ask it to organise the move for you. It can take up to 15 days to go through, although around two-thirds are completed more quickly. If it takes longer, then your new provider must start paying you the higher rate after 15 days.