Beware fixed-Isa penalties after the Bank Rate rise
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