Coalition lending plan hits ISA savers
Looking to stash cash in a tax-free home? There are slim pickings
The traditional ISA season ahead of the tax deadline in April looks set to disappoint this year with experts predicting lower savings rates than ever being offered by bank and building society individual savings accounts.
The problem is that the Government's Funding for Lending scheme has been a disaster for savers.
The scheme gave lenders £80bn-worth of cheap money to lend to home buyers and small businesses. That improved things for borrowers, but led to a fall in wholesale money market rates. The scheme effectively means that banks don't need to offer savers decent rates because they can borrow more cheaply on money markets.
"The Funding for Lending scheme has had a terrible impact on savers – the rates of the best buy easy access ISAs available for new customers have fallen by up to 1 per cent since the ISA season last March, even though there has not been a change to the Bank of England base rate," pointed out Anna Bowes of the rates analysts Savings Champion.
"Unless anything changes between now and the end of March, lenders are unlikely to show a desire to offer top rates to pull in new money," she warned.
In the current 2012/13 tax year you can put up to £11,280 in an ISA, with half (up to £5,640) allowed to be held in a cash deposit account. The remaining allowance must go into investment funds or stocks and shares.
But there's been major disappointment for those looking out for tasty ISA deals so far this year, said Sylvia Waycot, editor at Moneyfacts.co.uk. "New ISA accounts normally hit the market with a flurry of razzmatazz in early January, but we are already in February and only a few accounts have trickled quietly into the market.
"Normally we would expect to see providers trying to grab our attention with headline rates but this year, while rates on some accounts have gone up, they have not generally risen by as much as they were recently reduced by."
The rates on fixed rate ISAs – normally extremely popular with lenders as they have been able to use them to entice in new customers with short-term attractive deals – have slumped in the last 12 months.
The best rate available across the country for a one-year fixed rate ISA is currently just 2.05 per cent from Nationwide (although London-based Metro Bank is offering a 2.25 per cent deal to customers of its branches). The rate is paltry compared to the top deal of 3.5 per cent offered last April.
Moneyfacts reports that a year ago there were 385 cash Isas paying an average interest rate of 2.55 per cent; currently there are just 309 on offer and the average rate paid has fallen to 1.74 per cent.
But it's not been all bad news for savers in recent weeks, pointed out Anna Bowes. "We have actually seen moves to increase the interest being earned on older poor-paying accounts," she said. NS&I is moving its old Cash ISA and Cash ISA T accounts that currently pay just 0.5 per cent into its Direct ISA which pays a competitive 2.25 per cent.
Meanwhile the Coventry Building Society is increasing the rates on all its easy access cash ISAs from between 1 per cent and 1.2 per cent to 2.5 per cent for its customers.
"This could herald a move that rather than focusing on gaining new customers, some providers may simply try not to lose them," Anna Bowes said. "This would be great news for the millions of savers who never get around to switching their old savings accounts."
- 1 Stephen Fry explains what he would say if he was 'confronted by God'
- 2 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 4 Ball pool for adults opens in London
- 5 Rashida Jones speaks out against male-centric porn saying 'women should have sex and feel good about it'
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
Hard line on immigration could cost Tories the election
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion