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Cash ISAs: A gift to the banking sector
laptop80
Posts: 203 Forumite
OK, bit of a rant here, apologies in advance...
It really annoys me how the banks have been allowed to profiteer from ISAs, taking all of the benefit supposedly intended for savers and more.
The rates that bank are offering on these tax-free saving vehicles are nothing short of criminal. The best easy access rate at the moment is a measly 2.00%. How can this be justified when you can get 3.00% AER (2.4% after tax) on a current account? I don't think it can by any ethical measure.
ISAs now only make any real sense if you're a higher rate tax payer, but perhaps that was the plan all along? Banks are now creaming off so much from ISAs - both in low overall rates and their deceptive schemes (introductory rates & happily letting unaware customers enjoy near 0% rates of interest) that I'm of a mind that something really needs to be done.
When ISA rates were genuinely competitive with the rest of the savings market, a lot of ordinary people took advantage of this great new savings vehicle and put their money in year-after-year, as intended. Many of these people now find themselves with quite large amounts built-up and naturally do not want to withdraw the money and lose all of their accumulated annual contributions / have to start from scratch.
Savers like this feel hostage to ISAs and the banks know it; first making the rates no better than other savings schemes and now making them worse - much worse in many cases.
When you subtract the tax breaks from the rates, it's clear that banks are able to offer pitiful rates to savers on an industrial scale and get away with it. When you add in the other practices that surround ISAs, e.g. savers unaware they are getting near 0% interest after the introductory rate has finished (and the elderly are often most penalised by this, who typically trust banks to look after their next eggs and perhaps don't monitor their finances as often as banks have made necessary), the government really needs to take the banking industry to task.
A good start would be the ability to 'ISA' any savings account, encouraging genuine competition on interest rates instead of the ISA being a cash cow for banks.
It really annoys me how the banks have been allowed to profiteer from ISAs, taking all of the benefit supposedly intended for savers and more.
The rates that bank are offering on these tax-free saving vehicles are nothing short of criminal. The best easy access rate at the moment is a measly 2.00%. How can this be justified when you can get 3.00% AER (2.4% after tax) on a current account? I don't think it can by any ethical measure.
ISAs now only make any real sense if you're a higher rate tax payer, but perhaps that was the plan all along? Banks are now creaming off so much from ISAs - both in low overall rates and their deceptive schemes (introductory rates & happily letting unaware customers enjoy near 0% rates of interest) that I'm of a mind that something really needs to be done.
When ISA rates were genuinely competitive with the rest of the savings market, a lot of ordinary people took advantage of this great new savings vehicle and put their money in year-after-year, as intended. Many of these people now find themselves with quite large amounts built-up and naturally do not want to withdraw the money and lose all of their accumulated annual contributions / have to start from scratch.
Savers like this feel hostage to ISAs and the banks know it; first making the rates no better than other savings schemes and now making them worse - much worse in many cases.
When you subtract the tax breaks from the rates, it's clear that banks are able to offer pitiful rates to savers on an industrial scale and get away with it. When you add in the other practices that surround ISAs, e.g. savers unaware they are getting near 0% interest after the introductory rate has finished (and the elderly are often most penalised by this, who typically trust banks to look after their next eggs and perhaps don't monitor their finances as often as banks have made necessary), the government really needs to take the banking industry to task.
A good start would be the ability to 'ISA' any savings account, encouraging genuine competition on interest rates instead of the ISA being a cash cow for banks.
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Comments
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As an example of how banks are anti-consumer when pushing their profitable ISAs, we recently had to sort of the financial affairs of an elderly relative whose wife had just died. They had a substantial sum in a cash ISA accruing almost zero interest (surprise, surprise). When we went to the bank to withdraw the money and put it somewhere more useful the staff seemed incredulous that we didn't want to stick with the whopping 0.5% rate of interest. "But it's tax-free!" they said, as though this overrode the insultingly low interest rate.
To be honest we just laughed at how ridiculous/absurd their stance was, but if you were a vulnerable customer who trusted your bank you would probably have gone "Oh, ok then," because you might foolishly believe that the company you have entrusted your savings to would have your best interests at heart (or at least on their radar at all).0 -
When we went to the bank to withdraw the money and put it somewhere more useful the staff seemed incredulous that we didn't want to stick with the whopping 0.5% rate of interest. "But it's tax-free!" they said, as though this overrode the insultingly low interest rate.
That doesn't make any sense.
The tax-free status of the savings of the deceased is lost when it is inherited by the next of kin.0 -
Indeed.
and does anyone remember when it wasn't fashionable to hate banks, and instead we hated lawyers and estate agents?
The fact is, banks are not responsible for the state of interest rates, it is the BOE and quantative easing that are. If that was the correct decision for the govt to make or not (as well as if it was the right move to not let banks fail and prop them up or not) we don't know. Not sure we ever will.0 -
Banks aren't responsible for the BOE base rate, but they are responsible for the rates of their own products. The interest rate of ISAs is artificially low because they are in effect subsidised by the government. The benefit of this subsidy is not passed on to the consumer; it is kept in its entirety by the banks.Indeed.
and does anyone remember when it wasn't fashionable to hate banks, and instead we hated lawyers and estate agents?
The fact is, banks are not responsible for the state of interest rates, it is the BOE and quantative easing that are. If that was the correct decision for the govt to make or not (as well as if it was the right move to not let banks fail and prop them up or not) we don't know. Not sure we ever will.
But yes, this only irritates me because it's fashionable to hate banks, not because of their profiteering...0 -
If a bank was paying lower gross interest rates on their ISA compared to their equivalent "normal" savings account you'd have a point (although ISAs cost more to operate due to the legislative and regulatory compliance required to offer them).
Comparing three at random:
Halifax 1.35% Online Saver.
Halifax 1.35% Online ISA.
Skipton 1.20% Online eSaver.
Skipton 1.30% Online Cash ISA.
Barclays 1.00% eSavings Reward.
Barclays 1.29% Instant Cash ISA.
In all these examples savers are better off with the ISA.
So your rant isn't about ISAs. It's about wider interest rates.
This statement is an extraordinary piece of nonsense. If a bank is paying more interest on ISAs where is the subsidy?The interest rate of ISAs is artificially low because they are in effect subsidised by the government. The benefit of this subsidy is not passed on to the consumer; it is kept in its entirety by the banks.0 -
Interest rates are low because of the printers. They print money and pump it into the banks at low rates, so no incentive to give us savers anything, when they can get access to cash cheaper elsewhere.
Stupid government are to blame keeping rates low. It will all crash soon though then rates will have to go up0 -
sounds like you should start a government petition? I know a few people would sign it.
http://epetitions.direct.gov.uk/
I can see a number of sides to this as i don't think its right that you can earn more from current accounts (in some cases 2-3% more) than you can on ISAs. But banks are a busniess and need to make a profit in a number of areas.
I think the gov. should set a law that ISAs must have the highest interest rate by say 0.5 or 1% more than any other account (savings or current).
but you can beat the low ISA rate if you are willing to do the work and are not in the higher tax band. but not many people will get more than an avg. of say 3.5% to 4% after a lot of the fixed rates end 6 months to a year or 2.Age: 24 / London/Ireland / Salary €49,000 / 1 London BTL (8% yield) / Total savings pot £12k+
Lloyds Club CA £5,000 @4% / FD Regular Saver £3,600 @6% (12 of 12) / TSB Classic CA £2,000 @5%
Clydesdale Direct CA £1,000 @2% / Santander ISA £700 @0.5% / Premium Bonds - £100
Halifax Reward CA (£5 per month) / Santander 1|2|3 CC (cashback)0 -
opinions4u wrote: »If a bank was paying lower gross interest rates on their ISA compared to their equivalent "normal" savings account you'd have a point (although ISAs cost more to operate due to the legislative and regulatory compliance required to offer them).
Comparing three at random:
Halifax 1.35% Online Saver.
Halifax 1.35% Online ISA.
Skipton 1.20% Online eSaver.
Skipton 1.30% Online Cash ISA.
Barclays 1.00% eSavings Reward.
Barclays 1.29% Instant Cash ISA.
In all these examples savers are better off with the ISA.
So your rant isn't about ISAs. It's about wider interest rates.
This statement is an extraordinary piece of nonsense.
I take your point on other savings products. Current accounts must be far more profitable than we've been led to believe over the years (e.g. no more 'free' current accounts) for them to be able to offer the rates currently available, which are far in advance of ISAs.
I don't know how much it costs to adminster an ISA, so I will take your word for it that it accounts for most or all of the tax allowance when determining rates.
On subsidies being swallowed by the banks, would you not agree that FLS has allowed banks to reduce the rates they pay savers due to lessening their reliance on that capital? E.g. http://www.scotsman.com/business/finance/big-high-street-banks-sink-to-new-depths-in-profiteering-frenzy-1-2960712 Cheap cash from the BoE certainly appears to allow the banks to offer savers artificially lower rates, but if it doesn't I, and my extraordinary nonsense, stand corrected.0 -
sounds like you should start a government petition? I know a few people would sign it.
http://epetitions.direct.gov.uk/
There is already a petition - http://epetitions.direct.gov.uk/petitions/436580
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