New research by The Telegraph has highlighted the banks and building societies that are short-changing customers on their tax-free savings accounts.
C&G, part of Lloyds Banking Group, offers one of the worst. Its cash ISA pays a miserly 0.05%, 10 times less than Bank Rate. On a typical £1,000 investment, this means hard-pressed savers get just 50p interest a year.
What is particularly galling for these savers is that the bank offers a virtually identical account with far better rates for newer customers.
The Telegraph questioned the banks running some of Britain’s worst ISAs as to why they couldn’t move customers into better-paying alternatives. None would admit that the policy of offering multiple ISAs was designed to capitalise on savers’ apathy and maximise the bank’s profits. Most said it was to offer savers “choice”, even though there was rarely any advantage in staying in a lower-paying account.
Halifax, which is also now owned by Lloyds Banking Group, offers a “Variable Rate ISA” paying a derisory 0.1%, rising to 0.2% for those with £27,000 or more invested. However, the remarkably similar sounding “ISA Saver Variable” pays a far healthier 1.6p% on all balances.
It isn’t the only bank to adopt this sleight of hand when it comes to ISA rates. Santander’s Easy Access ISA pays 0.1% on balances of up to £27,000 (and then pays just 0.3%). But its Direct ISA, which has similar terms and conditions, pays a far more competitive 1.75%.
A spokesman for Lloyds Banking Group said both C&G and Halifax “encouraged customers to review savings rates regularly” and were upfront about the rates paid on all accounts. It said it couldn’t move customers automatically as there might be slightly different terms on newer accounts; for example, many older ISAs were passbook accounts, allowing customers to withdraw funds from branches.
NS&I, Britain’s largest savings bank, has taken steps to address the issue of fairness. Last month it said it was boosting interest rates for 100,000 of its savers by switching them out of its old cash ISA (paying 0.5pc) and into its Direct ISA, paying a more respectable 2.25%.
The move was followed by Coventry Building Society. From April, a quarter of a million savers in its cash ISA will see rates increased from 1% to up to 2.5%.