Halifax Bank will next week cut the interest rate on its market-leading cash individual savings account (ISA), just a day after the deadline for investing in the product in the current tax year. From Thursday, its ISA Saver Direct will lower the rate it offers from 5 to 4.75 per cent, although there has been no change in the Bank of England base rate since August.
The reduction will hit thousands of savers who have invested up to £3,000 in the current tax year with Halifax. The online account has been popular because, unlike most other best-buy deals, it pays a clean rate of interest, rather than relying on introductory bonus interest payments to get it into best-buy tables.
Susan Hannums of the independent financial adviser AWD Chase de Vere, said the move was disappointing. "We've regularly highlighted this account as an example of a big bank getting it right," she said.
A spokesman for Halifax said it was waiting until the first day of the 2006-07 tax year to implement the cut so that those who invested last April would get a full year of earning 5 per cent.
The bank pointed out that investors have the right to transfer their cash ISA savings to a new provider without losing the entitlement to tax-free interest.
Hannums said Halifax's decision could end the tough competition on cash ISAs. While several banks and building societies have cut the rates they pay on other accounts, the ISA market has remained competitive.
Of leading players, only Nationwide, Abbey and Royal Bank of Scotland have reduced ISA interest rates this year. ISA providers are usually reluctant to adjust rates down in the first three months of the calendar year, as the run-up to the end of the tax year on 5 April is the busiest period for savers using ISA allowances.
For savers thinking of transferring, National Savings & Investments, the Government-backed savings bank, will on Thursday launch an online and phone-based ISA paying 5.05 per cent. The account guarantees to stay at least 0.55 percentage points above the Bank of England base rate for at least two years.