British savers have been dealt a blow after a number of banks and building societies cut their rates on the Cash ISAs they offer, less than a month into the new tax year.
The move to slash rates has shocked market analysts, who have highlighted that the initial weeks of April are typically used by lenders to enhance rates and encourage savers to deposit part or all of their yearly ISA allowance into an account. This is so that savers can maximise their return from their ISA and begin their acquisition of interest from an early stage, though the news that lenders have opted for a converse route this year has caused a huge stir amongst financial spectators, who are struggling to explain the occurrence.
Santander were one of the countryís major banks to clash their rates on their Cash ISA products, with the organisation announcing that they would cut the rates on their Direct ISA Saver account for new account holders from 1.6% to 1.2%. They also clashed the rates on their ISA Saver from 1.5% to just 1% on balances of £10,000, and from 2% to 1.5% on balances over £25,000.
This pattern was mirrored by the Metro Bank, who also revealed last week that they would cut the rate on their easy access Cash ISA to 1.4%, a sharp fall from the previous 1.65% that was offered to new customers.
Rachel Springall, from data provider Moneyfacts, says: “It is highly unusual for providers to be cutting rates now ñ it’s been such a short window since the start of the new tax year.”
The reasons behind the sudden rate flash have been widely debated, with some market analysts attributing it to an over subscription of competitive Isa rates in the past few weeks, whilst others have argued that it is a direct response to the new NISA set to be introduced from July, which will see the cash allowance for an individual rise to £15,000.
There was also bad news on fixed rate ISAs, with the latest data indicating that lenders have slashed their rates on these accounts as well in the past week.
Skipton slashed its one year, fixed rate cash for new customers to 1.4%, down from the previous rate of 1.6%, whilst Santander have lowered their two year fixed rate ISA to a 1.8% rate rather than a 2% one.
The news that ISA rates have been tumbling comes just months before the NISA is introduced, which will see the ISA allowance for savers rise to £15,000 in cash, up from its current value of £5,940. The move slash rates could be a direct response to this higher saving threshold, as lenders look to adjust their offerings to the higher amounts of interest they will likely have to pay from the summer onward.
Industry experts have recommended that despite their tumbling rates that users nevertheless look at fixed rate ISAís as they currently come with the highest rates. They have also encouraged savers to look into new hybrid current accounts that are being unveiled that pay savers as high as 3% on balances, providing a minimum amount is placed into the account each month.
ISAís have soared in popularity in recent years, with recent statistics from Revenue & Customs for the 2011/2012 tax year indicating that almost 50% of the entire British adult population possess cash or stock and shares ISA. It is estimated that a monumental 16 million people have a Cash-only ISA, whilst a substantially lower 2.7 million have a stocks and shares-only one.
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