Five Questions On: ISA interest rates
They must be going up now that the new Isas have been launched?
You would have thought so, but no such luck. It had been hoped that the near trebling of the cash Isa limit from £5,760 in the last tax year to £15,000 this month would encourage savings institutions to start offering better rates to attract customers. But it hasn't really happened.
So have Isa providers just left rates as they were before the limit went up?
If only! Some have actually been busy reducing rates on cash Isas, the consumer group Which? has found. On 1 July, for instance, the day the new limits came into force, Harpenden building society slashed the rate on its variable-rate Simply Isa from 2.25 per cent to 1.5 per cent.
Meanwhile Cambridge building society has reduced the interest on its Instant Access Isa from 1.3 per cent to 0.7 per cent, while Tesco Bank's Isa standard rate fell from 1.75 per cent to 1.25 per cent, although the account will pay a 0.5 per cent bonus for six months.
Hmm, that's not so clever. Any more?
A further 10 providers have already reduced their rates or are planning to, reckons Which? – seven by 0.25 per cent, two by 0.2 per cent and one by 0.05 per cent.
Has any Isa provider raised rates?
Just four financial institutions have increased rates on variable cash Isas. BM Savings' Isa Extra went up from 1.25 per cent to 1.55 per cent (although that includes a 12-month 1.05 per cent bonus). Halifax, Sainsbury's Bank and Virgin Money have also boosted rates by 0.2 per cent, 0.1 per cent and 0.15 per cent respectively.
So should I give up on cash Isas?
Bear in mind that the return you get is free of tax, so to beat an Isa, you'd need to earn 25 per cent more in a standard savings account. However, keep checking the rates on offer and switch when you can. Better deals should emerge if interest rates rise later this year.
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