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Saturday Money: Super, soaraway Isas - or just a damp squib?: Savings From 1 July you can deposit pounds 15,000 in a Nisa. But, as Rupert Jones reports, the promise of 'tax free' doesn't mean much if they pay measly rates

June 21, 2014

Rupert Jones



The new super-sized pounds 15,000 Isas will be with us in just 10 days. But will the shake-up trigger a rise in interest rates from their current derisory levels?

The omens are not looking good. Several providers have cut their rates in the run-up to the launch on 1 July. From that date, Isas will be transformed into a simpler product known as the "New Isa", or "Nisa" for short (it's also been unofficially dubbed the "super-Isa").

Savers will be allowed to deposit up to pounds 15,000 a year in cash accounts, or invest the same amount in stocks and shares, or any combination of the two. So for a couple, that's a whopping pounds 30,000 a year they can shelter from the taxman.

But Sylvia Waycot at website Moneyfacts.co.uk says that while it is great that people will be able to put more money into the tax-free accounts, "the euphoria will be short-lived if they pay so little interest that the taxman hardly notices".

According to the site, the average cash Isa interest rate is just 1.58%. A year ago it was 1.74%. It's not only Isas - today the average standard easy-access savings account pays just 0.63%, down from 0.71% last year, and fixed-rate savings bonds have also taken a hammering.

Isa providers that have reduced rates since the start of this month include Santander, which is now offering 2% on its "123" two-year fixed rate Isa, available to 123 current account and credit card customers. Prior to 9 June it was paying 2.3%.

Santander's standard two-year fixed product now pays 1.5%, down from 2% before. Another account that has taken a hack is Ecology building society's Foundations Cash Isa, whose rate was cut from 2% to 1.5% on Monday.

NatWest and its parent bank Royal Bank of Scotland have also revealed details of cuts. In the case of both brands, the instant-access cash Isa rate for those with between pounds 1 and pounds 24,999 stashed away, will fall from 1% to just 0.75% on 1 August. The rate for those with a balance of pounds 25,000-plus will fall from 1.5% to 1% on the same date.

Meanwhile, it was claimed this week that there is an urgent need for greater awareness about the new regime. One third of those quizzed in a survey by financial services firm True Potential had never heard of New Isas/Nisas, while just 16% felt the new, more generous accounts will make them more likely to save.

Some providers have been pro-active. During the last few days Skipton building society has been writing to all of its 2014-15 Isa customers to remind them of the new rules following George Osborne's budget announcement in March.

Meanwhile, there was a bit of good news for savers this week when it emerged that inflation, as measured by the consumer prices index, fell more than expected in May - to 1.5%, down from 1.8% in April.

So how will the new Isa regime work? From 1 July, all Isas will become Nisas - this applies to existing accounts as well as those opened after 1 July. Between 6 April and close of play on 30 June, the total amount you can pay into a cash Isa is pounds 5,940.

If you also have a stocks and shares Isa, you will be able to pay into that account, but the combined amount must not be more than pounds 11,880.

When your account becomes a Nisa you will have a higher limit and more flexibility and you can then add further money up to the new pounds 15,000 annual limit.

There are a few semi-decent Isa rates still on offer, including:

* A five-year fixed-rate from Leeds building society, paying 2.85%. It has a minimum balance of pounds 100, and you are allowed to withdraw up to 25% of your capital without notice or loss of interest. Until close of play on 30 June the maximum subscription is pounds 5,940, and from 1 July to 31 July you can subscribe up to a maximum of pounds 15,000. No further top-ups are allowed after 31 July.

* A five-year fixed rate from Skipton building society, paying 2.75%. Open the account with a minimum of pounds 500. Once opened, you can invest your 2014-15 allowance of pounds 5,940, and the Skipton will let you top up your account to pounds 15,000 between 1 July and 31 July. Withdrawals are not allowed, and closing the account early will mean losing 240 days interest.

* An instant-access Isa paying 2% that is only available inside Coventry building society branches. The Branch Instant Isa's minimum initial deposit is just pounds 1. The Coventry's branches are, naturally, concentrated in the Midlands, though it also has a presence in areas such as the south-west, Gloucestershire, Oxfordshire and Wiltshire.

* An 18-month fixed-rate Isa from the Halifax, paying 1.7%. It allows people to pay in between pounds 500 and pounds 5,940 until 30 June. From 1 July the limit will increase to pounds 15,000.

Captions:

'Backing a Britain that saves': George Osborne's Isa shake-up budget pledge

1.58%

Euphoria will be short-lived if the new Isas pay so little

interest the taxman hardly notices


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Guardian (UK)


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