Play fair on ISAs, say savers
UK savers believe it is unfair for banks and building societies to offer lower rates on ISAs than on other savings accounts, according to research by Clydesdale and Yorkshire Banks.
The Banks asked consumers if they believed that banks and building societies should offer at least the same rate of interest on ISAs as they do on the equivalent "standard" savings account, ones that would incur tax on the interest. Of those surveyed, three-quarters (73%) said that banks and building societies should play fair and pay at least the same rate.
On the question of fixed rate savings, again savers overwhelmingly called for fair play. Asked if providers should pay at least the same rate on fixed rate ISAs as other fixed rate bonds of the same term, three quarters (75%) of savers said they should.
ISAs that pay the same rate of interest as their equivalent standard account, offer savers better returns due to their tax-free status. To achieve a 3% return, a basic rate taxpayer would need to save in an account paying 3.75% Gross. On longer term fixed rate products for example, to match an ISA paying 5.00%, a standard fixed rate bond would have to pay 6.25% Gross, a rate that is just not available in the current market.
Other practices, which have recently been highlighted as offering customers poor value on ISAs, include introductory bonus rates, failing to allow transfers in and delays in processing ISA transfer applications.
Clydesdale and Yorkshire Banks agree that these practices are not in the interests of customers. The Banks have, for some time, operated a transparent system for ISAs:
Paying at least the same rate on ISAs as on ‘standard' accounts with equivalent access
Offering clear rates with no misleading introductory bonuses
Allowing customers to transfer- in ISA balances
A commitment to meet the deadlines for ISA transfers
The Banks estimate that this year ISA investments will hit £40bn for the first time this tax year and that around £1.7bn will be lost in tax by savers not using their full ISA allowance this year.
Steve Reid, retail director, Clydesdale Bank, said: "The message to banks and building societies from savers is quite clear - ‘play fair on ISAs'.
"Paying at least the same on ISAs as similar standard accounts means that savers get the full benefit of the tax-free status. Paying less on ISAs than similar accounts undermines them and gives savers a poor deal.
"Transparency and fairness go hand-in-hand, we believe this is what customers want and it is how we operate."