Last month we waved goodbye to another year, tax year that is, and here at savingschampion.co.uk we pondered just how underwhelming the ISA season has been this year. The ISA season generally runs from around March to May and this time last year providers were still battling it out for your new tax year ISA funds. But this year, it was over early. Providers simply offered what they had and moved on. For those that did offer competitive rates, it felt more like a brand awareness exercise rather than a real desire to pull in new money by offering best buy rates.
But ISAs are really the only inflation beating option for tax payers – and there are precious few of these around. The March inflation rate of 2.80% left just two savings accounts which beat inflation. Yesterdays’ announcement that CPI fell in April to 2.40% will be a relief for many – but unfortunately it’s likely to be short lived.
There are now 14 ISAs and one non ISA Fixed Rate Bond that match or beat inflation for basic rate tax payers – up from just two in total*. Higher rate taxpayers will still have to opt for a cash ISA but it’s at least a move in the right direction. Of course nothing is simple in the world of savings as several of these accounts have conditions such as high minimum balances and/or are restricted in some way. As a result not all of the accounts will on the Best Buy tables but you are welcome to call us on 0800 321 3581 or email us if you want to know if there is an account that could be paying you a better rate of interest.
To add to savers misery, the cause of the doom and gloom - the Funding for Lending Scheme (FLS) - has been extended. Last month the government announced its plans to extend the FLS for another year until January 2015 (from January 2014).
The £80 billion scheme was launched in August 2012 to offer banks access to cheap borrowing to encourage them to lend and in turn get the housing market moving. It may be true that it is having some effect on the housing market but one thing’s for sure, the effect it has had on savings rates has been devastating. Rates have plummeted with easy access best buys dropping by almost 45% since its launch, as providers no longer look to savers to raise deposits to lend.
Interest rates have been brought down to record lows to support borrowers, the FLS was launched to support borrowers, now the scheme has been extended to support borrowers – when is something going to be done to recognise the plight of savers?!
Now we’re not saying the answer is necessarily to increase interest rates and potentially cripple the borrowers that currently survive due to the artificially low mortgage rates. But we are saying that to ignore the effect this is having on savers and more importantly those pensioners who rely on their savings income, seems terribly unjust.
* This includes the First Direct ISA offering 2.96% gross on a minimum balance of £40,000.