How banks are TRAPPING customers on lower savings rates as they ignore new ISA rules
SAVERS are being trapped on lower rates as banks and building societies ignore new ISA rules, The Sun can reveal.
Individual savings accounts (ISAs) offer tax-free savings on up to £20,000 a year.
You do not pay tax on any money within an ISA, regardless of how much interest you earn.
There are different types of ISAs, such as fixed or variable and each have different uses and merits.
Before April 2024, savers were banned from opening two ISAs of the same type in the same tax year.
However, new rules introduced by HMRC allow savers to open more than one type of ISA with either the same bank or different banks.
Now nine months later, The Sun can reveal only six savings providers allow customers to open multiple ISAs with them.
These providers are Aldermore, Nationwide, Paragon, Santander, Skipton Building Society, and Zopa.
But, major providers such as Barclays, HSBC, Lloyds Bank, and NatWest continue to deny their customers this option.
Customers can still open an ISA with a different provider but the extra effort that comes with this could discourage them from saving more money.
Consumer champion Martyn James said: “It’s incredibly disappointing to see from The Sun’s research that the main financial institutions have failed to prepare and introduce these new changes.
“This is a major concern to me, especially given that more and more people are risking everything on dodgy, unregulated investment options like cryptocurrencies in a desperate bid to make some money.
“We need to help people make their money work for them, not fail to introduce basic, simple changes that would make our money go further.”
New rules introduced in April 2024 also allowed savers to make partial transfers between different ISA providers, regardless of when the money was initially deposited.
Before this change, savers were required to transfer their entire ISA of that type from the current tax year or none at all.
However, The Sun has found that only two savings providers have implemented these changes.
Only Shawbrook and Zopa allow partial transfers in and out of their ISAs.
The other savings providers on our list do not offer this flexibility.
A UK Finance spokesperson added: “A range of changes have been announced to the ISA regime, some of which are mandatory and some are optional.
“Certain optional changes required time and coordination with HMRC to implement.
“As a result, rolling them out will take time and some ISA Managers may decide not to adopt all the optional changes.”
HSBC, First Direct, Lloyds Bank and TSB told The Sun that they are still reviewing the non-mandatory ISA rules and haven’t ruled out implementing them in full in the future.
Remember, the terms and conditions, such as interest rates and minimum deposit amounts, will always vary between providers and specific ISA products.
So, it’s important to shop around to ensure their money is working as effectively as possible.
TYPES OF ISAs
SAVERS can put away £20,000 a year into individual savings accounts, also known as ISAs, and any income or gains you make from them are shielded from tax.
This is different to regular savings accounts, where you are taxed on income earned from interest once you breach a certain limit – known as the personal savings allowance (PSA).
Basic rate taxpayers have a PSA of £1,000 while higher rate taxpayers get £500.
Anyone who is an additional rate taxpayer (taxed at 45%) has to pay tax on any interest they earn and gets no allowance at all.
You can split your £20,000 ISA limit between multiple ISAs, whether that’s a cash or stocks and shares ISA (we explain the different types below).
You don’t have to save the full £20,000 a year either.
There are several different types of accounts:
- Cash ISAs: A savings account where interest is earned tax-free. Suitable for risk-averse savers.
- Stocks and Shares ISAs: Invest in shares, bonds, and funds with potential for higher returns, but also higher risk. Gains are tax-free.
- Lifetime ISAs: Save up to £4,000 a year towards your first home or retirement, with a 25% government bonus on contributions.
- Junior ISAs: Tax-free savings accounts for children under 18. Available as cash or stocks and shares ISAs, with a yearly contribution limit.
- Innovative Finance ISAs (IFISAs): Invest in peer-to-peer lending with tax-free interest. Higher risk but potential for higher returns.
TOP CASH ISA RATES
If you’re looking for a tax-free savings account without withdrawal limitations, then you’ll want to opt for an easy access cash ISA.
These do what they say on the tin and usually allow for unlimited cash withdrawals.
The best easy access cash ISA available is from Plum, which pays 5.01% – and you only need to pay a minimum of £1 to set it up.
This means that if you were to save £1,000 in this account, you would earn £50.10 a year in interest.
Alternatively, Trading 212’s easy access ISA offers customers 4.90% back on savings worth £1 or more.
If you’re looking to grow your savings and don’t need regular access to your funds, a fixed-term cash ISA or a regular savings account could be a better option.
The best fixed rate currently offered is Shawbrook Bank’s one-year fixed rate cash ISA, which pays 4.53%, requiring a minimum investment of £1,000.
Virgin Money’s one-year fixed rate ISA offers 4.52% back with a minimum investment of £1.
This means that if you were to save £1,000 in this account, you would earn £45.2 a year in interest.
The best notice accounts offer slightly higher rates than the best fixed-term bonds.
These also come with more flexibility when accessing your cash.
Vanquis Bank’s 90 day notice account offers savers 4.60% back with a minimum £1,000 deposit, for example.
West Brom Building Society’s 90 day notice account offers 4.60% back to those with less money to save, requiring a minimum deposit of £1.
This means that if you were to save £1,000 in this account, you would earn £46 a year in interest.
If you’re looking to cultivate a habit of saving a fixed amount of money each month, a regular savings account could be quite beneficial.
However, these accounts may not be suitable for everyone, and only three are presently available in ISA form.
At the moment, the highest interest rate offered by these accounts is currently 3.8% with Vernon Building Society.
Therefore, it might be more advantageous to consider depositing your savings in one of the other aforementioned accounts.
FINDING THE BEST SAVINGS RATES
WITH your current savings rates in mind, don't waste time looking at individual banking sites to compare rates - it'll take you an eternity.
Research price comparison websites such as MoneyFactsCompare.co.uk and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you’ll want to consider any account that currently pays more interest than the current level of inflation – 2%.
It’s always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you’re saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.