ISA beware! Is your rate about to fall?

Got money sitting in a cash ISA? Then beware as your rate could be about to plummet.

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HSBC has just become the latest in a long line of savings providers to announce it is cutting ISA rates. From October 1, the rate on the HSBC e-ISA account will fall to 1%, down from its current 1.6%.

But HSBC ISA customers are not alone.

This November more than 1.6m ISA savers with Barclays will be switched to its standard ISA deal which pays a lower rate – and several other providers have already hit savers with their lower returns.

This makes it more important than ever to check whether YOUR tax-free savings account is paying the best rate possible. And if it isn’t, it’s time to vote with your feet and transfer your savings elsewhere.

HSBC

The e-ISA account has been closed to new customers since February this year. If you have money held in it, then your rate will drop to 1% on October 1.

However, you CAN transfer your e-ISA cash into HSBC’s Loyalty ISA provided you open, or already have, a current account with the bank.

So what does that pay?

If you’ve got an HSBC Premier account, you’ll earn 1.6% on any e-ISA savings you transfer to the Loyalty ISA, matching the e-ISA rate you are currently earning.

If you have an HSBC Advance current account, though, you’ll earn a lower rate of 1.5% in the Loyalty ISA. And if you have any other HSBC current account, you’ll earn just 1.4%.

Barclays

Barclays has 11 separate ISA accounts which are now closed to new customers.

But from November 5, money held in these 11 ISAs will be transferred to Barclays’ Instant Cash ISA 1. Although some of the 2million savers whose money will be moved will end up better off, most will lose out.

The ISAs affected are listed below:

Barclays Golden IS
Golden ISA Issue 2 and 3
Cash ISA
ISA Saver Issue 1 and Issue 2
Direct Cash ISA
Loyalty Reward ISA
Freestyle ISA
Tax Beater ISA
Tax Haven ISA

So what’s the damage?

If you have a balance of £15,000 or less in Barclays’ Loyalty Reward ISA, which pays an annual equivalent rate (AER) of 2.03% tax-free, your rate will drop to 1.29% when your money is transferred to the Instant Cash ISA 1.

Balances between £15,000 and £30,000 will earn 1.39%, rising to 1.49% if your balance is higher than £30,000.

Similarly, the Golden ISA pays 1.8% AER, so if you’ve got money in this account, you’ll earn less interest as of November.

Who else is cutting rates?

Not with Barclays or HSBC? Check out what other providers are doing here:

Tesco bank: If you have a Cash ISA with Tesco, your rate will have already dropped from 1.75% to 1.25% on July 1.

Chelsea or Yorkshire building societies: If you have a Cash ISA, with either of these sister providers, your rate will have fallen from 1.25% to 1% with effect from July 14.

Virgin Money: Got a Cash E-ISA (Issue 5) with Virgin Money? Your rate will have slid from 1.75% to 1.5% back on July 30.

NatWest and RBS: If you’ve got a Cash or Instant Access ISA with either of these banks, as from August 1, your cash is now earning 1% tax-free – down from 1.5%.

First Direct: If you hold a Cash ISA with the internet and telephone bank of HSBC, your rate will drop from 2% to 1.5% on October 16.

Nationwide Building Society: If you’ve already got a Nationwide Instant ISA Saver or Flexclusive ISA then you’re one of the lucky ones, as your rate WON’T change. You’ll continue to earn a tax-free 1.5% and 1.75% respectively.

HOWEVER, for new customers, rates have been reduced on the latest issues of these accounts. So, apply now and you’ll only earn 1.25% on the Instant ISA Saver and 1.5% on the Flexclusive ISA.

Fight back on falling returns

You don’t have to put up with falling returns, though.

If your savings provider has cut rates, or is about to, check to see if you can earn a better rate elsewhere.

Remember though that not all cash ISAs accept transfers, so you’ll need an account that will.

Don’t withdraw your cash to move it either, or you’ll lose the tax-free benefits. Instead ask for a transfer form from your new provider so they can arrange the transfer on your behalf.

ISAs which accept transfers include Teachers Building Society Cash ISA Notice 90 (Issue 4) paying 1.65% tax-free and BM Savings ISA Extra (Issue 11), paying 1.55%.

You need £100 to open the Teachers ISA or £1 to open the BM Savings ISA. If you want to make a withdrawal from the Teachers account you’ll need to give 90 days’ notice, or you’ll lose 90 days’ interest.

The BM Savings’ rate includes a 1.05% bonus for the first 12 months, so you’ll need to move your money again once this disappears.

The Teachers ISA can be operated by post or online, while the BM Savings ISA is only available by post.

See the difference it makes when you earn interest tax-free with our savings calculator

Top fixed rate ISAs

If you’re happy to tie up your money for a while, then you can earn higher returns with a fixed rate cash ISA.

You won’t usually be able to make withdrawals, but you’ll have peace of mind that the rate won’t change during the account term.

If you're happy to tie up your money for a while, then you can earn higher returns with a fixed rate cash ISA.

The current market-leading one year fixed rate cash ISA is from United Bank, and pays 1.75% on a minimum investment of £2,000. This account accepts transfers from existing ISAs and can be managed by post or in branches.

If you’d rather manage your finances online and can afford to lock up your savings for longer, then Virgin Money’s 3 Year Fixed Rate Cash E-ISA Issue 81 pays 2.25% on balances of £1 or more. This account also allows transfers.

Only consider this account if you’re certain you can tie your cash up for the full three years. Although you can make withdrawals, you’ll lose 120 days’ interest every time you take money out.

Find the right type of account for you with our savings decision tree!

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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