News Column

Case study From 7.25 % to 0.31%

July 12, 2014



For a decade, two keen Guardian readers (who want to remain anonymous) each stuck with the same cash Isa provider and dutifully paid in the maximum amount. But then the married couple discovered that the 7%-plus interest rate each of them originally enjoyed had, over time, shrivelled to as little as 0.1%.

The Leicestershire couple - he is in his early 70s, she is her late 60s - are a good example of how loyal long-term customers can be penalised. Thankfully, they eventually realised that their interest rates had plummeted and moved their accumulated Isa savings into accounts paying better rates. Now the pair each invest their full entitlement in a different fixed-rate Isa each year.

But there will doubtless be plenty of other people out there who have not had the wake-up call and need to take a long, hard look at their savings portfolio - and probably take action.

"It's undoubtedly the case that faithful savers are ignored, on the basis that they don't check their situation too often," the husband told Guardian Money. "There are always attractive rates for new savers, and often existing people don't get the same level of offer."

Between them, the couple now have just over pounds 200,000 in cash Isas, some of which is money they originally invested in tax-free Tessa accounts. They each hold six Isa accounts, some of which contain quite chunky sums rolled up from years gone by.

The husband says that after Isas were introduced in 1999 they each chose a savings institution with which to open an Isa. He opted for online bank Smile's offering, while his wife went for an Alliance & Leicester account. Each was paying 7%-plus at the time, and over the next decade they shoved in the maximum annual amounts.

But then "we realised the schemes we had been faithfully chipping into each year were rewarding us with abysmal rates". The interest rate on the Smile Isa had fallen to 0.31% while the A&L one was paying just 0.1%. Smile did indeed have an Isa paying 7.25% in early 2000, and is now paying 0.31% (0.5% if you have a Smile current account).

Meanwhile it is certainly true that A&L (now part of Santander) was offering 7% on a cash Isa in 2000, and that there is a former A&L account, the Easy Isa, currently paying 0.1% on balances of pounds 1 to pounds 27,000.

They may have sorted out their portfolio but our readers say they have "some potentially difficult decisions looming" over the coming months, because the bulk of their Isas mature in the first half of 2015.

"With such relatively large amounts, rates so low and so few institutions apparently accepting 'transfers in' these days, I anticipate we could be faced with accepting trifling interest rate offers for rolling over our maturing Isas with their existing scheme providers or, because of limited scope for transferring the proceeds elsewhere, cashing in and reinvesting in whatever fixed-rate bonds we can find - under which our interest earnings became taxable. I'm sure this must be an approaching problem for others ."

Rupert Jones



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Source: Guardian (UK)


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