The launch of New Isas today (1 July) has been hit with claims that providers have lowered interest rates and are being slow to facilitate transfers to the new savings products.
Since March, the rate of a 1-year fixed Isa has fallen by 0.10 per cent to 1.48 per cent and the average variable cash Isa has fallen by 0.05 per cent to 1.21 per cent, according to information from Moneyfacts Group.
Comparing these deals to the taxable counterparts, the 1-year fixed bond and easy access average has remained unchanged at 1.42 per cent and 0.63 per cent respectively.
“The falls in rates will likely cause much disappointment for savers who did not see a fruitful Isa season this year and have pinned hopes on the new limits to provide new deals,” Moneyfacts finance expert Rachel Springall told FTAdviser.
“Sadly, since the start of the current tax-year, more providers have reduced their Isa rates than increasing them, with 13 different providers dropping rates since the start of the tax year and only 9 increasing.”
Mutual organisation Scottish Friendly agreed that several providers have started to reduce already low interest rates in anticipation of the launch of the ‘Nisa’, stressing that more needs to be done in communicating the alternatives that are available for investors.
Neil Lovatt, director of financial products at Scottish Friendly, said: “The changes introduced in the Budget gave savers a glimmer of hope and incentivised people to put more money aside each month.
“However, the cash Isa market has not risen to the opportunity, instead choosing to offer low rates of interest on cash Isas and in some cases actually reducing their rates for fear of overly high inflows.”
Competition for new deals has been relatively scarce with a only a few providers launching brand new ‘best buy’ worthy products, according to Ms Springall, who mentioned Virgin Money’s 1-year fixed Isa, paying 1.76 per cent, and Progressive Building Society’s new regular Isa saver, paying 2.75 per cent.
She added: “Today we have seen Halifax increase its Isa rates such as its Isa online saver now paying 1.50 per cent and its 1-year fixed Isa paying 1.55 per cent which is good to see, but they don’t top the charts.”
Skipton Building Society also took the opportunity to up its fixed rate Isa range, with the interest rate on its 1-year fixed rate Isa increasing to 1.45 per cent while the five year product is still paying 2.75 per cent.
Andy James, head of retirement planning at Towry, warned about the low returns banks are offering on cash Isas and also mentioned that many savers have experienced difficulties in transferring their Isas to different providers.
Before the Nisa changes came into effect, individuals could only transfer a cash Isa into a stocks and shares Isa, and not the other way round. Now individuals can hold up to the £15,000 annual limit in cash or equity-based investments, however Isas can only be transferred in full.
Anna Bowes, financial adviser and director of London-based Savings Champion, cautioned that advisers who fail to familiarise themselves with the transfer and top- up policies of Isa providers and individual product terms could find their clients left out in the cold.
Specifically two deals from Nationwide - Nationwide Regular Saver Isa (Issue 2) and Nationwide Flexclusive Isa (Issue 7) - were found to not accept transfers in from existing Isa clients.
Chris Smeaton, James Hay Partnership’s marketing director, said that difficulties and delays transferring to and from Isas could be down to the relatively small lead time from legislation to implementation with the Nisa changes.
He said: “Some providers offering a paper-based manual solution will have found this challenging and may be only offering basic cash Isas, whereas those on platforms will be feeling the efficiencies of automation.”
