Barclays slashes ISA rates
Barclays has ditched the 1% bonus on its popular Golden cash ISA and cut the rates on other ISA accounts.
Despite the Bank of England base rate remaining on hold for two months, the bank has taken the decision to reduce rates for existing ISA customers as well as those looking to place their 2008/09 allowance. Savers in its Tax Haven ISA will now only earn 0.83% interest while those in its Tax Beater ISA will see their rate drop to just 0.56%.
Both these accounts are now closed to new business but were popular with savers looking to grow their money free of tax. The Tax Haven ISA, which was relaunched last October with a competitive rate of 6.25% AER including a 12-month 1% bonus, was especially attractive to pensioners as it allowed them to earn a monthly income.
Barclays has also reduced the rate on its current variable-rate ISA offering. The Golden ISA was launched earlier this year with a competitive rate of 3.61%, including a 1% bonus for 12 months. Although the account was criticised for not accepting ISA transfers, the fact that it offers savers instant access and can be opened from as little as £1 has made it stand out from other deals on the market.
David Black, banking consultant at data provider Defaqto, says the move by Barclays should be a wake-up call to savers who have let their ISAs drift over from one tax-year to the next.
“There is no reward for loyalty in the savings market at the moment so banks and building societies are profiting from inertia,” he explains. “People in Barclays Tax Haven and Tax Beater, or in any other ISA where the interest rate has dropped, should look to move into a new deal that accepts transfers where they will undoubtedly earn a better return.”
However, Black believes the people in Barclays’ Golden ISA who are receiving their 1% bonus should stay put.
Barclays is not the only savings provider to ditch a competitive ISA offering. First Direct has replaced its 3.06% e-ISA with a less attractive 1.98% fixed-rate deal.
Cash ISAs are normally at their most competitive at the start and end of the tax year. However, Andrew Hagger, spokesman for Moneynet.co.uk, believes that providers such as Barclays and First Direct may have already reached their ISA deposits quotas.
"We’re only two months into the new tax year, yet some of the more attractive cash ISA accounts have either had their rates slashed or been withdrawn completely," he adds. "If you haven’t invested your ISA cash for 2009/10, even though there are still 10 months still to run in this tax year, it may be prudent to make your choice sooner rather than later before some of the other top deals disappear too."
Top fixed-rate ISAs accepting transfers
* Leeds Building Society pays 4% on deposits of £1 - transfers are accepted but this is a five-year fixed account so you'll have to be prepared to tie your money up for a while. Leeds also offers a three-year fixed ISA payings 3.25% again on deposits from £1.
* Halifax also pays 4% AER on its fixed-rate ISA – but again, bear in mind this is a four-year bond and no withdrawals are allowed during this period. Transfers are allowed. You can open this account with a £500 deposit, but additional deposits are not permitted.
* Julian Hodge Bank also pays 3.5% on deposits of the full £3,600 with its five-year fixed account. Withdrawals during the term of this account are not permitted.
* Newcastle Building Society's range of fixed-rate ISAs that pay up to 3.5% AER and all accept transfers of ISAs from previous tax years. The higher your interest rate the more notice you need to give to get your money out though.
Top variable-rate ISAs accepting transfers
* National Counties Building Society is offered a Guaranteed Cash ISA paying a variable rate of 3.26% AER. Although this rate is not fixed, it is guaranteed to be at least 1% above the Bank of England base rate (currently 0.5%). You can open this account from £1 and transfers are accepted.
* Marks & Spencer Money pays 3.01% on its Advantage Cash ISA, which can be opened with a £100 upfront deposit. This deal includes a 1% bonus until 21 April 2010.
M&S allows you to make unlimited withdrawals without penalty from this account, and you can also make regular payments of at least £25 by monthly direct debit. Transfers are accepted.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.