Now 1 in 3 ISAs pay less than 1% interest

SAVERS are being hit with the worst interest rates in history with a third of Isa accounts now paying less than 1 per cent a year. The number of customers trapped in poor-paying Isas has doubled in the last two years as interest rates on them plummet to new lows.

One in six accounts offers less than the Bank of England’s base rate at just 0.5 per cent, while some savers are stuck on rates of 0.1 per cent.

The proportion of these tax-free accounts returning below 1 per cent has doubled in the last two years, from one in six to one in three.

It means that on the current worst Isa rate of 0.1 per cent, someone depositing £15,000 would make a paltry £15 a year in interest.

In contrast, a saver on the most competitive rate of 1.5 per cent would make £225 – a difference of £210 a year.

With four weeks left to use this year’s £15,000 Isa allowance, many

‘Toughest time on record for savers’

savers will question the value of such accounts.

The Building Societies Association said there was not ‘one single factor’ driving down Isa rates but said the ‘persistently low base rate’ had contributed to lower returns.

A spokesman added: ‘I don’t think t here is a hard correlation between Isa rates and mortgage rates. Each provider has to strike a balance between savings rates and mortgage rates as they need both savers and borrowers.’

Experts also blame the Government’s Funding for Lending scheme, which allowed banks to borrow cheaply in return for handing out home and business loans after the economic crisis.

The scheme meant that banks no longer needed savers’ money – reducing the need to offer competitive rates, it is claimed.

Anna Bowes, of independent savings website Savings Champion, said: ‘After six years of the base rate at 0.5 per cent, this is toughest time on record for savers, and ISA savers have certainly not been immune to the pain.

‘ISAs were once seen as the go-to savings product due to their tax free status. But with rates at an all-time low, some savers – especially those looking to build up a short-term lump sum for perhaps a house deposit or a car – may need to be more creative.

‘High-interest savings accounts offer rates of up to 5 per cent before tax, so even a tax payer could find that this route could earn them more interest.’

But Rachel Springall, of the website Moneyfacts, warned: ‘Despite the gloomy outlook on savings rates, consumers need to use their tax-free allowance, or lose it.

‘While there might be an abundance of taxable savings accounts out there, it is always worthwhile to track down an Isa equivalent and use the yearly tax-free allowance.’