Last weekend, using data supplied by us, the Mail on Sunday reviewed the state of the cash ISA market and looked at how much of the last two base rate rises the banks and building societies have passed on to their savers. Regular readers of our news articles will not be surprised at the findings, although it is still shocking.
The research looked at the easy access cash ISAs on sale on 1st November 2017, the day before the Bank of England increased the base rate from 0.25%, back up to 0.50%.
We then looked at the rate of interest that is being paid on these same accounts, two base rate rises later.
Just six accounts have increased by the full 0.50%.
These are from smaller building societies Swansea, Penrith, Cumberland, Furness and Buckinghamshire, plus Al Rayan Bank. In fact, the rate on the Al Rayan Bank cash ISA has increased by 0.85% and that ISA is now one the best-paying easy access cash ISAs available, at 1.35% tax free/AER.
But there are also 13 providers that have failed to pass on anything – and all the others are somewhere in between, ranging from 0.05% to 0.45%.
Of course, while what has been passed on is important - as many will assume that when the base rate rises, their savings rates will rise in line - it’s not as simple as that.
What is more important is how much you are actually earning.
For example, AA, and Post Office have failed to increase the rate at all on the cash ISAs that they had on sale on 1st November 2017, even though there have been two base rate increases.
While that is poor practice, these particular accounts are paying 1.06% and 1.07% respectively, which whilst not best buys, are fairly competitive.
Similarly, Coventry & West Brom have increased rates by 0.20%, so less than one of the base rate rises, but are now paying 1.25% on their cash ISAs – a very competitive rate.
On the flip side, Halifax has passed on 0.40% - so nearly the full rise - however, the rate it is now paying is just 0.60% - which is certainly not competitive.
On £20,000 that means earning £250 tax free per annum with Coventry and West Brom, compared to Halifax where you’ll earn just £120 per year.
Other standout ISAs include the Skipton Building Society’s off-sale Cash ISA Plus, which after an increase of 0.45% since last November, is now paying one of the best easy access cash ISA rates in the whole market, at 1.47% tax free/AER.
Of course, there are also providers that really are taking advantage of customer inertia.
Virgin Money’s Easy Access Cash ISA Issue 20 was and is STILL paying just 0.25% - an appalling rate then (1st November 2017) when it was matching the base rate. But even worse today with the base rate at 0.75%.
Similarly, Santander’s eISA (Issue 3) has seen no increase. It is still paying just 0.35% - that is just £70 a year on a deposit of £20,000.
And NS&I is set to disappoint those who hold its Direct ISA, as the rate is still due to be cut by 0.25% on 24th September this year, back down to its pre base rate rise level of 0.75%.
The problem is that since the introduction of the Funding for Lending Scheme back in 2012, the link between the Bank of England base rate and the rates that savers earn has been severed.
So, savers need to keep a careful eye on what they are earning and switch if they are not getting a fair deal.
But it’s not all bad news. Best buy cash ISA rates have increased by more than the standard equivalent accounts over the last year or so. So, while many best buy cash ISA rates still lag behind the best standard equivalent accounts, especially fixed rate accounts, the gap is narrowing.
Of course, many are in despair at the poor rates that continue to be on offer as a whole in the cash savings market and some commentators suggest that savers should be abandoning cash ISAs and moving to the stock market instead. But this could be a bad idea, especially if you have a particular need for the money. If the value of your investment falls just prior to encashing, you could get back less than you invested.
As you know, we don’t advise you whether cash is the right home for your money, but we can point you in the direction of a Chartered Independent Financial Adviser who should be able to help.
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