Keep an eye on your ISA
Here at your friendly neighbourhood Bitterwallet, we are always looking out for your wallets, and have warned you on numerous occasions of the perils of leaving your cash ISA invested with the same provider forever without checking that you are still getting a good rate of return. Both the word 'perils' and 'good' in that sentence are relative, but you know what we mean.
Now, millions of ISA investors who trusted Barclays with their money are about to be done out of what pitiful interest they are currently getting, as Barclays have announced a 'simplification' to their ISA offering that coincidentally means they will end up paying out less interest to ISA savers. Sounds like a banker's idea of a great plan.
From November 5, more than two million customers who have money in one of the Barclays' 11 closed ISA accounts will be automatically transferred to the bank's Instant Cash ISA 1. The simplified account pays 1.28% on balances up to £15,000, 1.38% on balances up to £30,000 and 1.48% on higher amounts.
Barclays said the vast majority of savers who will see their rates reduced will only lose an average of £2.22 a month. This works out at over £26 a year, which isn't, perhaps, earth-shattering, but it's still £26 better in your pocket than in the bank's. However, some customers will lose over £200 a year- the Freestyle ISA, for example, currently pays 2.76%, meaning savers holding £15,000 in this account will lose £207 a year.
Around 1.6 million savers will have their incomes cut but some Barclays ISA will benefit, with around 744,000 seeing their rate remain the same or rise as a result of the changes. Accounts such as the Barclays Cash ISA and the Tax Beater ISA currently pay laughable rates of interest, at 0.1% and 0.56%, respectively.
But why would people have invested in such ridiculous investments that pay a fraction of 1% interest? It is likely that these products started out with a much higher rate in order to entice savers' cash, but over time the rate has simply been eroded to become almost entirely pointless, and way below the rate of inflation.
Savers, including ISA savers, should always check that their rate is still good in the market. Often ISA rates will fall after introductory bonuses, or after a guaranteed fixed-rate period. Most banks (correctly) assume that once you have invested your cash, you will ignore it and just expect to cash in an increased sum at some undefined future point.
But you can do something about it, and if you spot a better rate elsewhere you can simply reinvest your cash ISA fund into one that pays you more interest. However, you must NEVER just withdraw your cash ISA cash and then attempt to pay it into another ISA. Even with the new NISA rules, with increased contribution limits- up to £15,000 a year, this way lies madness. There is no common sense in the ISA world, and the second you withdraw ISA cash it becomes, well, simply cash, and any reinvestment would be subject to the annual limits. Instead you have to ask your bank to transfer your ISA fund to the new account, which they must do within strict prescribed time limits.
Also, some of the best cash ISA rates may not accept transfers in. Banks offer great rates to tempt the mugs, who will then forget about their cash (see above), so many ofthem are not willing to pay a higher rate on accumulated balances, they'd rather only cough up against whatever you can manage to save in one contribution (tax) year. Check the small print before requesting a transfer, or search for accounts that specifically accept transfers in.
Like the new simpler Barclays Instant Cash ISA 1. Lee Chiswell, head of savings at Barclays, said: "We want to simplify the way we do business with our savings customers. These changes will make it easier for our customers to understand their products, and easier for our staff to serve them. Customers will also have the added benefit of being able to Transfer-in."
The 11 cash ISA accounts affected are: Barclays Cash ISA, Direct Cash ISA, Freestyle ISA, Golden ISA, Golden ISA Issue 2 and 3, ISA Saver Issue 1 and Issue 2, Loyalty Reward ISA, Tax Beater ISA and Tax Haven ISA. The bank is writing to its customers this week to inform them of the changes.