Cash ISAs: A gift to the banking sector

ColdIron

Interesting. Would you be kind enough to share your source info. Much obliged

Interest rates apply to your whole balance. For example, if you have £4,000 in your account you will receive an interest rate of 3.00% AER on your entire balance.
http://www.lloydstsb.com/current-accounts/vantage.asp

dunstonh

The banks originally never wanted anything to do with ISAs. The early planning was for them to be sold via supermarkets. i.e. do your shopping and put the change in the ISA. The original planned cash ISA limit was just £1000. The supermarkets eventually said the technology was not there or the cost was too high. So, the banks were approached to take on the offering of as the cash ISA but they said it was not profitable at £1000. So, the limit was increased to £3000. It still wouldnt make them as much money as a normal savings account but it was seen as a way to bring in more money overall.

In the early years, the costs of running a cash ISA were higher than a normal savings account and with the greater number of accounts with smaller balances meant that the profit margin was lower. Today, that still exists but nowhere near the same scale.

So, any suggestion that banks are profiteering out of cash ISAs is ill thought out and misdirected.

Interest rates are set by the bank of England. Not the banks. If you look at the difference net interest margin the banks have at the moment, they are lower than the average as they typically tend to suffer during periods of low interest rates but make more when interest rates are higher.

Also, proportionately, savings rates are actually a lot higher than base rate normal to more normal times.

As much as it is popular to bash the banks, the low interest rates on your cash ISA is not down to them profiteering.