Two out of three stay with paltry paying ISAs
Two-thirds of cash ISA savers are missing out on higher interest rates by failing to change their accounts after the initial bonus periods expire.
This means many people are losing out from gaining more interest on their money by not switching accounts, according to research from Consumer Focus.
Most of the top cash ISAs offer high introductory rates, which include a bonus period usually set at 12 months. However, after this time the rate will plummet to an uncompetitive average of 0.5%.
More than a third of people with cash ISAs have held the accounts for more than five years, and around 33% aren't sure whether the bonus rate on their account has expired or not.
Although interest rates are rock bottom at the moment, one in three people in the UK has a cash ISA and many are missing out on higher rates on offer.
With this tax year's ISA deadline fast approaching, savers only have until midnight on 5 April to put in the allowance for the current year, £5,100.
Currently the best rates on offer come from Santander paying 3.30%, Barclays paying 3.25% and Nationwide paying 3.10%.
The rates are low, but both the Santander and Nationwide accounts track the base rate so will increase as and when interest rates rise. This amount is also still higher than the average rate offered after bonus periods expire.
Oliver Morgans, financial services expert at Consumer Focus, says warns that ISA customers have to watch banks like a hawk if they are to get the best deals. He advises savers check their rates annually and if the rate is low switch to an ISA that pays more.
"We want to see banks introducing simpler products which work for the majority of savers. People shouldn't need to be full-time consumers permanently switching accounts to get fair rates," he adds.
Head of savings at confused.com, Chris Griffiths, says: "An ISA really should be the first port of call for your savings as you can earn interest without it being taxed, giving you a better return and ultimately putting more money in your pocket."
For the best ISA deals check out the Moneywise ISA round-up.
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.
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.