Millions of cash Isa savers could be losing money thanks to the ‘bait-pricing’ of accounts by banks and building societies, a new study claims.
Research from Consumer Focus shows that two thirds of people who have opened a cash Isa with a bonus interest rate did not move their money once the introductory offer expired – meaning that they are now likely to be earning poor returns on their savings.
Worryingly, the research also reveals that almost a quarter of cash Isa savers did not know whether their account even had a bonus rate.
Meanwhile, a third of account holders surveyed were not sure whether their introductory cash Isa rates had expired.
Consumer Focus also says that more than a third of savers who hold a cash Isa have had it for over five years. Consequently, it’s likely they are losing out on earning a competitive interest rate and would benefit from transferring their funds to a new Isa provider.
Cash Isas and ‘bait-pricing’
Consumer Focus argues that cash Isa providers’ use of initial bonus interest rates, which reduce sharply after a set period of time, is equivalent to ‘bait-pricing’.
Attractive-looking deals encourage savers to open accounts, but people don’t always notice when their returns begin to dwindle – or realise how far the return on their savings has fallen since their account was first opened.
Which? launched the Great British Savings Scandal in 2010 to combat this very issue, and built a unique savings booster tool to help people identify poorly-performing savings accounts and find out which are the best deals to switch to. We’re also asking banks and building societies to be more up front about their rates, offering customers clearer information on the returns they are earning both online and on their annual paper statements.
Best Rate cash Isas and transferring your money
However, the fact remains the many of the market’s Best Rate cash Isa deals offer introductory bonus rates. For example, the AA and Santander’s cash Isas pay 3.35% AER and 3.3% AER respectively, but both rates include bonuses payable for 12 months only. In the case of Santander, the bonus on offer is a very high 2.8% – meaning that, after keeping money in this account for a year, you would earn a low rate of just 0.5% unless you transferred it elsewhere.
If you have Isa savings, it’s important to check the rate you are earning on your money every year and move your cash to a new Isa if a better deal is available. Our savings booster, or Best Rate cash Isas review, will help you find the right one.
If you’ve never moved your cash Isa savings before, make sure you do so in accordance with the rules or you could be at risk of losing your tax-free benefits. Our cash Isas advice guide explains all you need to know about transferring your cash Isa.
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