Nisa countdown: savers play the waiting game
With the launch of chancellor George Osborne's flagship Super Isas on 1 July, the cash Isa allowance rises to £15,000, up from £5,940. In addition, for the first time, savers can move freely between shares and cash at any time.
In the run-up to the changes, banks and building societies have been cutting back rates. They are not hungry for your money and fear there may be three waves of it coming their way.
The first wave of money could come from savers adding £11,060 to top up this year's cash Isa to the full allowance. The second may be generated by investors looking to lower the risk on their portfolio by transferring some money from shares to cash. The third might come from savers holding off opening a cash Isa until July.
The waiting game
Richard Fearon, head of Halifax Savings, the largest cash Isa provider, says: "Our research shows a significant proportion of savers are holding off putting money into cash Isas until July. We believe they're looking to put it all in at once rather than £5,940 in April and then a top-up to the full £15,000 in July."
Cuts have come from high street names including Lloyds, Halifax, Santander, Tesco Bank and Virgin Money, along with Leeds, Yorkshire and Newcastle building societies.
Lloyds Bank has chopped its rate by a fifth for new savers, cutting its easy-access Cash Isa Saver from 1.25 to 1%. Rival Santander has also reduced rates for new savers to 1%, while Leeds Building Society now pays just 0.75%.
Fixed rate Isas are also poor, with the top one-year rate at 1.65% from Tesco Bank. Crucially, you don't want to lock your money away if rates start to rise.
As an alternative, you can earn 1.6% on an easy access account with Cheshire and Derbyshire building societies.
Higher rates are a realistic prospect. The National Savings & Investments Pensioner Bonds are due to launch next year at rates way over the current deals.
These bonds are set to snap up £10 billion, or a quarter of the total taken in from savers by banks and building societies in the 12 months to April. If money flows out of banks and building societies, they could have to raise rates to attract disenchanted savers.
The NS&I one-year bond is expected to pay 2.8% before tax (2.24% after) and the three-year deal 4% (3.2%).
The exact rates will be announced in the Autumn Statement later this year. The bonds will be available to savers aged 65 and over, with a maximum of £10,000 per bond.
This article was written for our sister website Money Observer
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
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.