Savers urged to check Isa deal

Savers who fail to switch to a better deal once their bonus-paying cash Isa ends will typically lose £85 in the coming year, a consumer group has warned.

With a new tax year starting this week, thousands of savers have accounts for which the bonus period is about to run out, and were urged to move their cash or risk throwing their money "down the drain".

Which? calculated that based on the current maximum tax-free allowance of £5,340, those people who do not move their money once the bonus period has ended on their account will lose £85 on average this coming year as rates drop.

The consumer group warned that if savers find the best-paying accounts come with a big bonus when they join up, they must be vigilant and switch before their interest rate and potential earnings plummet.


Which? executive director Richard Lloyd said: "If there's only one thing that people do about their finances this weekend, it should be to look at whether they would be better off by moving their money to a new account. Cash Isas should give people a real incentive to save and we're calling on the banks to play fair and pay at least as much on their cash Isas as their equivalent standard savings accounts after tax."

To come up with its £85 calculation, Which? compared all the instant access cash Isa accounts that were available in April 2011 and included a 12-month bonus. It then worked out the "go to" rate, which is the rate once the bonus period ends, calculating the interest on £5,340 that consumers would lose out on if they left the amount in the account for a year after the bonus period ends.

Savers have until Thursday to make full use of their 2011/2012 Isa allowance if they have not done so already. From Friday, when the new tax year starts, the annual Isa investment allowance will increase and up to £5,640 can be saved in a cash Isa.

The Financial Ombudsman Service (FOS) has warned that savers risk missing out on their annual tax-free Isa allowance if they wait until the "last minute". Consumer complaints on the issue tend to rise at this time of year as people find they have missed deadlines, the ombudsman said.

Kevin Mountford, head of banking at MoneySupermarket.com, said: "Activity in this year's Isa season has been high, with a number of new products coming onto the market so savers may well find their existing Isa rates are below par.

"Consumers should check the current rate they are on and switch to a better deal if necessary. Isa transfer rules brought into effect make it easier to switch, and many providers pay interest immediately, even before the funds have arrived in the account. However, make sure you follow the Isa switching rules otherwise your savings could lose their tax-free status."

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