ISA savers risk losing £500m by not switching to better deals

ISA savers risk losing up to £500 million this year by not switching to a better deal once the bonus rates on their existing accounts expire, according to analysis by MoneySupermarket.
 
The comparison website compared the top ten ISA rates offered in March 2012 which have bonuses due to expire, and found savers could see their interest rate fall to as little as 0.25 per cent once the bonus no longer applies. This is ten times lower than the current market leading instant access ISA rate of 2.50 per cent.
 
For example, someone who had invested the full cash ISA allowance for the 2011/12 tax year of £5,340 in the Halifax ISA Saver online, which offered an AER of 3 per cent in March 2012, earning £160 in interest, would now find their twelve month bonus rate of 2.75 per cent coming to an end. Failing to take action and switch to a higher paying ISA rate would leave them languishing on a rate of just 0.25 per cent AER, or a return of only £13.35 on their savings balance in the next twelve months.
 
By switching an existing ISA balance to a market leading deal which allows transfers in, savers could really help maximise their savings pot. The Cheshire Building Society cash ISA account, for example, currently offers 2.5 per cent AER when you transfer an ISA balance, and would mean interest earned would be £137.50 - an extra £124 for someone transferring the existing balance.
 
Kevin Mountford, head of banking at MoneySupermarket said: "If you have funds in an existing ISA and have held this for more than 12 months then the chances are, you will be receiving a rate far lower than you can receive on the current leading products in the market. It is therefore vital that ISA savers check the current rates paid on their ISA and be prepared to switch. The majority of banks are not proactive when it comes to making sure you are on the best deal, so it pays to be savvy and not let them get away with it. The difference between the average and top paying rates can be significant, and with less than four weeks to go until the end of this current tax year ends on 5th April, savers should look to make the most of their tax efficient ISA allowance, which for cash ISAs this tax year is £5,640. Moving to a better deal can go a long way to help maximise returns.
 
"Switching an existing ISA balance to a market leading deal which allows transfers in can help maximise your savings. Despite low interest rates, the amount of money you can earn by doing so can be significant. However, make sure you follow the official ISA switching rules and watch out for any penalties or charges for doing so. Savers planning to switch ISA accounts should avoid withdrawing the cash- as it will lose its tax-free status. Instead, speak to your provider about arranging the transfer instead, or face losing your tax advantage."