The UK's worst cash ISAs
These 73 tax-free havens for your cash pay pathetic rates of interest!
When searching for superior savings accounts, it's crucial to look into these four factors:
- the interest rate paid (ideally, the higher, the better);
- whether interest is tiered (which means larger balances earn higher rates of interest);
- if the interest paid is taxable; and
- how easy it is to access your cash.
Generally speaking, to earn the highest rates of interest, you have to deposit large sums or lock away your money for an extended period of, say, one to five years. In effect, this is a trade-off -- in return for higher, fixed rates, you agree not to make any withdrawals during the fixed-rate period.
The best rainy-day funds
Of course, when looking for a home for your rainy-day or emergency fund, you don't want to lock up this cash inside a notice account. After all, what's the point of having 'crisis' funds if you can't access them when you need to? That's why I'd recommend keeping your emergency savings in a top-paying, easy access savings account.
What's more, depending on your personal tax rate, the taxman may run off with between a fifth (20%) and half (50%) of your pre-tax savings interest. This explains why I'm a huge fan of cash ISAs, the tax-free savings accounts open to all of UK residents aged 16 and over.
In the 2011/12 tax year (which ends on 5 April), you can deposit up to £5,340 into a cash ISA. Therefore, for a couple, this limit doubles to £10,680. After 6 April, the 2012/13 tax year kicks in and the cash ISA limit increases by £300 to £5,640.
By saving inside a cash ISA, rather than a taxable savings account, you can boost your after-tax interest by between 25% and 100% (all other things being equal). Furthermore, you are free to transfer money from bog-standard savings accounts into a cash ISA, as long as these transfers don't exceed the deposit ceiling for a cash ISA.
Britain's top tax haven
Since their launch in April 1999, ISAs have grown to be the UK's most popular tax haven, with more than 19 million Brits using these tax-free accounts.
Alas, millions of us have dumped money into cash ISAs and, instead of keeping an eye out for the best rates, have left our money to rot in inferior accounts. The good news is that it's a fairly simple process to transfer your cash from poorly performing accounts to cash ISAs paying top rates of interest.
No interest at all
To find out how low ISA interest rates can go, I checked the rates payable for ISAs on balances of £1+. The bad news is that I found no fewer than 38 cash ISAs that pay zero interest on £1. If you have small sums stored inside the following accounts, then I'd urge you to switch without delay:
Institution |
ISA account name |
Notice period |
AA |
AA Internet Access ISA (Issue 2) |
No notice |
Aldermore |
30 Day Notice Cash ISA Issue 2 |
30 days |
Britannia |
Limited Access Cash ISA |
Instant |
Buckinghamshire BS |
30 Day Cash ISA Issue 2 |
30 days |
Buckinghamshire BS |
Gold Rush 120 Day Notice Cash ISA Issue 2 |
120 days |
Chelsea BS |
Over 50's Cash ISA (4th Issue) |
Instant |
City of Derry BS |
Cash ISA |
30 days |
Clydesdale Bank |
Cash ISA - 40 Day Notice |
40 days |
Darlington BS |
Rolling Tracker Cash ISA 2 Limited Edition |
Instant |
Darlington BS |
Rolling Tracker Cash ISA 3 Limited Edition |
Instant |
Dudley BS |
Cash ISA |
Instant |
Furness BS |
ISA 90 Issue 2 |
90 days |
Hinckley & Rugby BS |
120 Day Notice Cash ISA |
120 days |
Hinckley & Rugby BS |
7 Day Notice Cash ISA |
7 days |
Ipswich BS |
90 Day ISA |
90 days |
krbs |
Branch 60 Day Notice ISA Issue 1 |
60 days |
krbs |
Internet 60 Day Notice ISA Issue 1 |
60 days |
krbs |
Postal 60 Day Notice ISA Issue 1 |
60 days |
Manchester BS |
Premier Instant ISA Issue 5 |
Instant |
Mansfield BS |
Cash ISA Monthly Income |
30 days |
Market Harborough BS |
2011 Brighter ISA Issue 9 |
Instant |
Market Harborough BS |
Cash ISA 60 |
60 days |
Marsden BS |
Direct Cash ISA 30 |
30 days |
National Counties BS |
1st Issue 45 Day Cash ISA |
45 days |
Nationwide BS |
75 Day ISA Issue 1 |
75 days |
Nationwide BS |
Champion ISA |
60 days |
Nationwide BS |
Online ISA Issue 2 |
No notice |
Newbury BS |
Senior Monthly Cash ISA |
Instant |
Principality BS |
Principality Promise ISA |
30 days |
SAGA |
ISA Saver (Issue 3) |
No notice |
Sainsbury's Finance |
Cash ISA |
No notice |
Shepshed BS |
Bonus ISA |
60 days |
Shepshed BS |
Postal ISA |
No notice |
Skipton BS |
Online Super Cash ISA |
No notice |
Skipton BS |
Super Cash ISA |
No notice |
Teachers BS |
Cash ISA Notice 90 |
90 days |
Tipton & Coseley BS |
Premier ISA |
No notice |
Yorkshire Bank |
Cash ISA - 40 Day Notice |
40 days |
Source: Moneyfacts
In fairness, there is one reason why some of these accounts pay no interest on low balances. For any interest to be paid, some accounts require a minimum balance of, say, £500. Below this threshold, the interest rate drops to zero.
Then again, my view is that to qualify as genuine savings accounts, accounts must pay interest on even the smallest balances. Therefore, the above 38 cash ISAs get a firm thumbs-down from me.
35 awful accounts
Digging deeper, I found another 35 cash ISAs that pay interest of below 1% a year on balances of £1 and upwards. What disappoints me is that so many of these inferior ISAs come from building societies, the traditional home for British savings since Victorian times. They are:
Institution |
ISA account name |
Yearly interest |
Notice period |
Dunfermline BS |
Cash ISA Issue 3 |
0.10% |
Instant |
Dunfermline BS |
Direct Cash ISA Issue 3 |
0.10% |
No notice |
Santander |
Easy ISA |
0.10% |
Instant |
Wesleyan Bank |
Cash ISA |
0.10% |
No notice |
Derbyshire BS |
Cash ISA |
0.25% |
Instant |
First Trust Bank (NI) |
Cash ISA |
0.25% |
Instant |
Nationwide BS |
Instant Access ISA |
0.25% |
Instant |
Newcastle BS |
Nova ISA |
0.30% |
Instant |
Norwich & Peterborough BS |
Cash ISA |
0.30% |
Instant |
Norwich & Peterborough BS |
Gold Cash ISA |
0.30% |
Instant |
Smile |
Cash ISA |
0.31% |
No notice |
Clydesdale Bank |
Cash ISA |
0.40% |
Instant |
Newcastle BS |
Newcastle 30 days ISA |
0.40% |
30 days |
Yorkshire Bank |
Cash ISA |
0.40% |
Instant |
Britannia |
Cash ISA |
0.50% |
Instant |
Cheshire BS |
Cash ISA 3rd Issue |
0.50% |
Instant |
Marsden BS |
Cash ISA |
0.50% |
Instant |
NatWest |
Cash ISA |
0.50% |
Instant |
Newcastle BS |
Newcastle 55 ISA |
0.50% |
Instant |
Northern Bank (NI) |
Cash ISA |
0.50% |
No notice |
Saffron BS |
Reward Cash ISA (Issue 3) |
0.50% |
Instant |
Santander |
Direct ISA Issue 7 |
0.50% |
Instant |
Smile |
Cash ISA |
0.50% |
No notice |
The Co-operative Bank |
Cash ISA |
0.50% |
No notice |
Ulster Bank |
Cash ISA |
0.50% |
Instant |
Royal Bank of Scotland |
Instant Access Cash ISA |
0.55% |
Instant |
Melton Mowbray BS |
Cash ISA Issue 2 |
0.60% |
Instant |
Principality BS |
Cash ISA |
0.60% |
Instant |
Triodos Bank |
Cash ISA |
0.65% |
33 days |
Barnsley BS |
Falcon Cash ISA |
0.70% |
Instant |
Cambridge BS |
Cash Instant Access ISA |
0.70% |
Instant |
Shepshed BS |
Cash ISA |
0.75% |
60 days |
Yorkshire BS |
ISA Plus |
0.80% |
Instant |
Selftrade |
Cash ISA Issue 2 |
0.90% |
No notice |
Hanley Economic BS |
Instant Access ISA |
0.95% |
Instant |
Source: Moneyfacts
As you can see, these 35 cash ISAs pay tax-free interest of between 0.1% and 0.95% a year. According to Moneyfacts, the average no-notice savings account pays interest of 0.91% a year. Thus, even though they pay tax-free interest, almost all of the above ISAs will generate less interest than the typical taxable savings account.
Ditch and switch today
With the Consumer Prices Index (CPI) measure of inflation currently running at 4.8% a year, there isn't a single standard savings account that beats inflation for basic (20%), higher-rate (40%) or additional-rate (50%) taxpayers.
In fact, to keep up with the rising cost of living, the savings of a basic-rate taxpayer need to earn 6% a year before tax. For higher-rate taxpayers, this hurdle rises to 8% and, for taxpayers in the 50% bracket, this pre-tax interest rate is an impossible 9.6% a year. Given that the Bank of England's base rate is a mere 0.5% a year, these rates simply aren't achievable.
Nevertheless, please don't leave your savings gathering dust and shrinking in value inside sub-standard savings accounts. By ditching and switching (which involves a little bit of effort and paperwork), your hard-earned cash could be earning tax-free interest of between 3% and 4.5% a year in Best Buy cash ISAs!
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