Greedy banks pocket YOUR Isa tax breaks

BANKS and building societies are up to their old tricks of paying less on cash isas than on taxable accounts.

Savers can expect worse returns on cash isas taken out this year than ever before.

But rates on taxable accounts have crept up, as new banks vie with established rivals to offer better deals on fixed-rate bonds and easy-access accounts.

Paragon Bank pays 1.8pc on its new three-year fixed-rate bond, but only 1.4 pc on its cash isa over the same term. The difference in interest on the full £15,240 isa allowance is £138.

Newcastle Building Society’s new one-year cash isa pays 1.2pc but its equivalent bond pays a higher 1.4 pc.

You have until April 5 to use all or part of your cash isa allowance for this tax year. it then resets at £20,000 for April 2017 to April 2018. interest is automatically tax-free and does not affect your tax code.

Rates are far below the level of a year ago, having fallen by more than August’s 0.25-point cut in base rate.

despite their tax-free status, savers seem to have fallen out of love with cash isas, once one of the most popular accounts.

in the past 12 months, people have put just £5.4 billion into them — less than half the £14 billion in the previous year.

The fall comes even though the amount going into all deposit accounts rose by 4 pc.

This is due to a toxic combination of ultra-low rates, the arrival of the £1,000 tax-free personal savings allowance on non-isa accounts and the fact that big banks don’t need your money.

Providers that have historically paid well have cut rates harshly.

M&S Advantage isa offers just 0.5 pc, down from 1.3 pc last year.

Nationwide Flex-Account has tumbled to 0.75 pc from 1.3 pc and National Savings & investments is down 0.5 points to 0.75 pc from May 1.

Yorkshire BS last year offered 1.35pc to new savers. This year it’s just 0.65 pc.

The top High Street deals for this year include Coventry BS easy Access isa 5 and Skipton Bonus isa at 0.9pc. The Skipton deal has a 0.25point bonus for the first year.

Virgin Money defined Access Cash isa pays 1.01pc, but you can make only three withdrawals a year and earn this rate.

See if you can add to your existing cash isa if it has a good rate.

For example, Coventry BS lets you add to your Branch instant isa, closed to new savers, which pays 1.4 pc. On fixed-rate deals the best for one year is 1.2 pc from Newcastle BS or 1.05 pc from Virgin Money. For two years Aldermore Bank and Skipton BS pay 1.2 pc. But in a complete turnaround, you can earn more in a taxable account. New banks, keen to attract savers’ cash, have pushed up rates on fixed-rate bonds and easy-access accounts. As newer banks rarely offer cash isas, rates are at rock bottom due to less competition. By using your personal savings allowance, you pay no tax on interest on ordinary taxable accounts. This gives basic-rate taxpayers the first £1,000 interest taxfree yearly. Higherrate payers get £500. experts warn against this, and advise using your cash isa allowance. if you don’t use it one year, you can’t carry it over. They argue when rates do start to rise, you may face a tax bill that could have been avoided.