Higher ISA allowance fails to inspire banks

Higher ISA allowance fails to inspire banks
Date of Publication: Thursday, 25 September 2014 12:47

The increase in the ISA allowance has failed to ignite the market, as rates fell to a record low in August.


A series of new rules introduced in July have failed to arrest a long-term slide in the tax-free accounts.


The average instant access ISA rate has fallen for the fifth consecutive month to just 1.17%, according to Moneyfacts – the lowest on its seven-year records.


The figures show that the majority of rates have been in decline since the changes to ISA products were announced earlier this year.


The amount that can be stashed away tax-free has seen a huge increase to £15,000 per year.


Savers also have much more flexibility over their ISAs. They can now invest their entire allowance in cash, compared to just half prior to July.


It is also now possible to transfer riskier stock ISA funds back into cash, whereas this was only previously possible in the other direction. (Find out more.)



But banks have been unwilling to add spark to the market while the Bank of England base rate remains at rock bottom.


The average notice ISA returns just 1.30%, while fixed-rate products have also fallen since April, despite a slight recovery in August.


Alternatives to ISAs

The below-inflation average makes taxable accounts a more attractive proposition.


Current accounts from Nationwide and TSB are currently offering rates of up to 5%, with the added bonus of instant access.


Likewise, the fixed-rate bonds market is challenging for deposits. A 15-month bond through the Bank of Cyprus UK will return 2.00% gross or 1.60% after tax.


There are also products without the same level of protection offering much more attractive rates.


Castle Trust’s 1 year bond returns 2.25% for one year, and 2.75% for two years. Both are eligible within a stocks and shares ISA.


Savers may be eligible for cover of up to a maximum of £50,000 through the FSCS if Castle Trust becomes insolvent.


Wellesley & Co is also offering attractive rates on peer-to-peer investments for terms between six months and five years. A one-year investment should return 4.00%, while an 18 month term is expected to return an eye-catching 4.65%.


The organisation is not covered by the FSCS, though loans are secured against property in the UK, which boosts the chances of recovering the capital if a borrower defaults.


Secure Savings Video


Keith McDonald

Which4U Editor

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Thursday, 25 September 2014 12:47
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