Be­ware fixed-Isa penal­ties af­ter the Bank Rate rise

The Daily Telegraph - Your Money - - FRONT PAGE -

Not all banks are mak­ing it easy to get a bet­ter rate on your sav­ings, write Amelia Mur­ray and Laura Suter

Re­turns on best-buy sav­ings ac­counts have risen af­ter the Bank of Eng­land in­creased of­fi­cial in­ter­est rates last week, but many savers will find them­selves trapped in low-pay­ing ac­counts. Bank Rate was raised from 0.25pc to 0.5pc last week – the first in­crease in a decade. Al­ready savers have seen the top rates in­crease in line with the rise.

How­ever, many banks and build­ing so­ci­eties are re­fus­ing to pass on the in­crease to savers, while oth­ers will find that they have to pay sig­nif­i­cant exit fees to switch to bet­ter ac­counts. com­mu­ni­cate this with­drawal of funds to me. No doubt the charge is in the small print but at no point was my at­ten­tion drawn to it.

“If I’d been a year or two into the Isa term, I’d un­der­stand. But it was only a few weeks.”

Na­tion­wide said its 365-day loss of in­ter­est penalty was clear in its terms and con­di­tions and it of­fered a 14-day cool­ing-off pe­riod. It claimed that if Mr Hod­der had con­tacted it be­fore the trans­fer it would have warned him about the in­ter­est he could lose.

The mutual pointed out that it had lost funds ex­pected to be held for five years.

A Na­tion­wide spokesman said: “In­ter­est rates on fixed-rate ac­counts are higher than those for in­stant ac­cess as the provider ex­pects to have the money for the term of the bond or Isa, where the funds can be used to­wards pro­vid­ing mort­gages for other mem­bers.”

Rachel Springall of Money­facts, the data firm, said in­ter­est rate rises could tempt peo­ple to trans­fer their Isa bal­ance but they needed to be very care­ful about the dam­age it could do to their sav­ings.

She ad­vised savers to speak to their provider if they were think­ing about trans­fer­ring their Isa to find out how much they could lose.

She added that it would be un­wise to opt for a long-term fixe­drate ac­count while in­ter­est rates re­mained un­cer­tain.

Savers who hope that the Bank of Eng­land’s ac­tion will mean more in­ter­est in­come have been left dis­ap­pointed as the big­gest banks are re­fus­ing so far to pass on the in­ter­est

This week Paragon Bank an­nounced that it was rais­ing the rate on its easy-ac­cess sav­ings ac­count to 1.31pc, the high­est rate on the mar­ket.

How­ever, this rate only just beats the pre­vi­ous best buy, from RCI Bank, which pays 1.3pc in­ter­est.

The need to hunt around for the best deals is high­lighted by the fact that the best easy-ac­cess ac­counts now pay more than 10 times the av­er­age rate.

There has been a flurry of rate in­creases in re­cent months, tak­ing the best rate on a one-year Isa from 1.31pc in Septem­ber to 1.51pc, from Vir­gin Money, which re­mains the top rate to­day.

Ac­tiv­ity has slowed but ex­perts say savers should keep their eye on the best buy ta­bles fol­low­ing the rise in Bank Rate.

Rates on the top fixed-rate sav­ings bonds have in­creased since the rate rise – but there has only been one new mar­ket leader.

Mo­bile-only provider Atom Bank has in­creased rates since the Bank of Eng­land’s rise and cur­rently pays the high­est rate at one year, 1.95pc. It also raised its three-year bond rate, to 2.25pc, but this only matches the pre­vi­ous high­est rate.

‘Some of the big­gest providers have yet to con­firm they are sup­port­ing savers’

Exit charge: Robin Hod­der had to pay £844 when he switched to a bet­ter Isa rate

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