Savings rates have been slashed at a rate of nine per day since the introduction of pensioner bonds, according to Which? research.
Our new study indicates that 63 savings accounts, Isas or bonds had their interest rate lowered in the seven days following the launch of the market-leading pensioner bonds by National Savings & Investments on 15 January.
A total of 27 savings companies have taken the decision to reduce interest rates during this time. The biggest rate reductions have come from Aldermore Bank, Charity Bank and Nottingham BS, which all reduced rates by 0.50% on some savings products.
Halifax has reduced the rate on its Passbook Saver by 0.40%, Norwich & Peterborough Building Society has cut the rate on its fixed-rate bonds by 0.30%, while Lloyds TSB, Natwest, Royal Bank of Scotland, Shawbrook Bank and Tipton & Coseley Building Society have all slashed at least one savings rate by 0.25%.
The Which? Money Compare savings and Isa tables let you search hundreds of savings accounts and Isas from providers large and small to find a good account based on quality of service as well as rates, costs and benefits.
Which? Money Compare table: Savings and Isas – hundreds of accounts compared
Cash Isas or Pensioner Bonds?
More than £1 billion has been invested in pensioner bonds since their introduction. The one-year bond pays an annual interest rate of 2.8% (2.24% after basic-rate tax) and the three-year bond pays an impressive 4% (3.2% after basic-rate tax). Higher rate taxpayers would earn 1.68% and 2.4% respectively.
Only one tax-free cash Isa can match or beat the returns available from pensioner bonds, and only for higher rate taxpayers investing in the one year bond.
Virgin Money is one of just five savings providers to have raised rates in the last week, increasing the rate on its one-year fixed-rate Isa from 1.65% to 1.7%. This means higher-rate taxpayers with an investment of £10,000 would earn £170 interest over a year – £2 more than they could with a one-year pensioner bond. Lower-tax payers would still be better off with a pensioner bond, earning £224 on a £10,000 investment in the one-year bond.
However, as pensioner bonds have an investment limit of £10,000 per person – and are only available to over-65s – cash Isas, which have a limit of £15,000 per person, remain a useful investment option for those looking to build a large tax-free nest-egg.
Which? Money Compare Table: Fixed-rate Cash Isas – find a great deal
Scrap the Savings Trap
Earlier this week, the FCA released a market study suggesting competition within the savings market isn’t working well for consumers.
The regulator revealed it was discussing a number of potential ways to fix this, including the introduction of a compulsory ‘switching box’ that reveals how a customer’s account compares with the rest of the market, on all communications.
Previous Which? research found consumers are missing out on an estimated £4.3 billion by leaving savings in poor value accounts.
We are campaigning for savings providers to ensure that interest rates and terms for all accounts are genuinely clear, easier to compare and provided regularly to customers.
You can support our campaign by signing our petition calling for banks and building societies to Scrap the Savings Trap.
Find out more: Scrap the Savings Trap – sign our petition and set your savings free
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Which Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.