You knew life was tough for savers, but did you know things were this bad?
Cash ISAs, supposedly the cream of all savings vehicles because of their privileged tax-free status, have turned into a sorry joke.
Returns have inevitably collapsed after nearly six years of 0.5% base rates. But some thought that banks and building societies would make a bit of an effort.
Well, they haven’t.
How Much!
New research from independent savings advice site Savings Champion reveals that some household name banks operate cash ISAs paying just 0.1%.
Step forward, the Halifax Variable Rate Cash ISA and Santander Easy ISA, and hang your heads in shame.
To be fair to Santander, its rates do rise to 0.50%, but only if you are willing and able to save a whopping £40,000 with them.
And frankly, why would you do that?
Bad ISA
Halifax and Santander aren’t the only big names offering scandalous cash ISA rates. HSBC starts at a scarcely better 0.20%, while Bank of Ireland, Nationwide and Saga pay just 0.25%.
And there are plenty more offenders. In total, savers hold £12 billion in easy access cash ISAs paying less than 0.5%, with big high-street names among the worst offenders, according to the recent FCA Cash Market Study.
Loyalty Doesn’t Pay
Most of these rates are offered on ISA accounts that savers took out years ago.
Banks and building societies calculate that trusting customers won’t check their rate and discover what a bad deal they’re getting.
Don’t act surprised. That’s how the banks operate.
The banks aren’t going to change their ways, so it’s up to you to act
Ooooh… 1.5%
There are better rates out there, targeted at new customers.
The Post Office pays 1.50% on its easy access ISA, although this includes a bonus of 0.85% that disappears after 12 months, leaving you with just 0.65%.
Aldermore Bank pays a fixed rate of 1.85% a year for two years, on £1,000 or more.
It’s better, but still abysmal.
Or You Can Get Up To 6%
So what can save you do in a world where cash ISAs have become irrelevant? The over-65s can seek solace in pensioner bonds, at least until May.
The rest will have to grin and bear it, or accept a bit more risk, by investing in stocks and shares.
The FTSE 100 is on a roll right now, inches away from its all-time high of 7000.
It contains plenty of top household name stocks such as BP, Royal Dutch Shell, GlaxoSmithKline, National Grid, Royal Mail, Scottish & Southern Energy and Vodafone, which are paying dividend income of between 4.5% and 6.5% a year.
That’s up to 65 times the return on cash, with potential capital growth on top.
Many older savers rightly won’t want to take a chance on the stock market. The rest can no longer afford to ignore it.