ISA savers failing to opt for high interest rate accounts

Posted on February 8th, 2011 | Categories - Savings

Moving ISA savings around to make the most of competitive interest rates could help people make a better return on their capital.

Consumers could make over a grand each year if they put their money into the correct Isa.

ISA savers may be losing up to £1,300 a year in interest payments by failing to move their money into accounts that have more favourable rates.

Many banks do not allow customers to transfer their cash into better accounts and some have been cutting back rates on older ISA plans, which has left many consumers feeling shortchanged.

Michelle Slade of the data provider Moneyfacts.co.uk said: “Many people are sitting on sizeable savings if they have taken out ISAs over the past decade. So while it makes sense to check you’re getting the best rate you can on any new Isa, the priority should be to make sure your existing Isa savings are still earning a fair rate”.

Currently savers can set aside up to £5,100 a year in tax free ISA accounts – those who have paid into an ISA every year could have saved just under £50,000 before the addition of any interest payments.

However, according to moneyfacts, if these savers had transferred their ISAs into the best one-year fixed rate account every year their cash would have amounted to about £70,000.

The website also outlined that the average return paid on a cash ISA is 1.71% even though many banks, such as Halifax, Santander, Barclays and Nationwide, pay out just 1%. At the same time savers can earn 4.3% on Northern Rock’s five year fixed-rate ISA or 3.1% on the Bank Of Cyprus’s one-year ISA, which illustrates the range of interest rates available with many accounts in the market today.

Ms Slade said: “This difference in interest rates can add up to a significant sum if you are sitting on ISAs worth £50,000. On this amount, those who opt to take out this Northern Rock account would earn an extra £1,332 a year compared with the average ISA deal, and those with the Bank of Cyprus deal would earn an additional £700”.