Cash ISAs capped at 12,000 (a year)

refluxer

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension. This is not looking good. AND the tax rate on savings is going up by 2%. Thanks for nothing Rachel Reeves.

Savers have obviously been rewarded with relatively high interest rates over the last few years but rates have declined this year due to the reductions in the base rate and it's not uncommon for banks and building societies to reduce rates in anticipation of any likely reductions (such as the one predicted for 18th December) so, as mentioned above, it's unlikely the reductions you've just been told about are due to the budget.

That's the price you pay for leaving your money in easy access accounts though - you've got easy access to your cash but at the expensive of any rate certainty. If you want rate certainty and don't need access to the capital, then fixed rate cash ISAs often make sense if you can get the timing right. Fixed rates peaked at between 5 and 6% a couple of years ago and even now, it'll only take 1-2 more base rate drops to make the 4%+ rates currently on offer end up looking good in retrospect.

 

Albermarle

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension. This is not looking good. AND the tax rate on savings is going up by 2%. Thanks for nothing Rachel Reeves.

Interest rates have been drifting downwards for about 18 months, and will probably continue to do so for another 18 months.
A lower Bank of England rate is seen generally as a good thing for the UK as a whole, but it does put downward pressure on saving rates. 
I can not see it is connected to any changes for ISAs proposed for 2027.

Kim_13

Albermarle said:

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension. This is not looking good. AND the tax rate on savings is going up by 2%. Thanks for nothing Rachel Reeves.

Interest rates have been drifting downwards for about 18 months, and will probably continue to do so for another 18 months.
A lower Bank of England rate is seen generally as a good thing for the UK as a whole, but it does put downward pressure on saving rates. 
I can not see it is connected to any changes for ISAs proposed for 2027.

It would be possible that they will go down slightly quicker than they would otherwise have done, since those with cash to deposit now have this tax year and next to do it before they can only do £12,000 and to some extent will take what they can get rather than the rate needing to be set to entice them. Conversely there probably won't be an increase in 27/28 on the basis that there is less money for providers to chase, as the carve out for over 65s means that the banks and building societies will still get more from them.

Personally I feel that a base rate of 4% strikes the right balance and indeed it was at that level or higher for much of the time Labour were last in power. The country seems to have become addicted to cheap borrowing and the BoE seem determined to facilitate it whatever - rate cuts with inflation double the target, but they just say that it was less than expected now. I can see the rationale for a reduction with employment figures not looking so great but coming on the back of others that I did not agree with I am not best impressed either.

I would have taken the Shawbrook 5.22% (I think) 5 year fix in 2023 but was prevented from doing so by ISA rules that only allowed one ISA per tax year at that time. I've had the £1,000 ready to go for a while now to secure a multi year fix but it looks as though it will be sitting in an EA indefinitely.

x44

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension. This is not looking good. AND the tax rate on savings is going up by 2%. Thanks for nothing Rachel Reeves.

Residents of other countries are usually amazed at the whole concept of a tax free savings regime that we have.  They have to pay tax on pretty well 100% of their savings income.

Then again think yourself lucky you didn't work in the 1970's.  Top marginal rate of income tax was 83% and on top of that was investment income surchage for all "unearned income" which was15% bringing the top marginal tax rate for high earners with savings income of 98%.  And if all that was not enough, there was no seperate taxation for wifes. So her income was simple dumped on top of her husband's income and they were taxed on that combined sum at the highest marginal rate. So a wife with savings income married to a high earning husband would find that 100% of her savings income was taxed at 98%.  Oh yes and there were capital controls in place as well so you could not just "take your money out of the UK" and leave.

wmb194

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension. This is not looking good. AND the tax rate on savings is going up by 2%. Thanks for nothing Rachel Reeves.

It's expected that the Bank rate will be reduced by 0.25% on 18th December so my guess is that you're being given notice now to front run that rather than the notice clock ticking from the date of the announcement.

Aretnap

Tommaso46 said:

I have 2 Cash ISAs and both of them emailed me today to notify that they are going to cut the interest rate in early December. I assume this is because the new rules reduce future Cash ISA demand and point to further base-rate cuts in future. So the providers no longer need to offer high rates as a way to attract deposits. 

If anything the market has tended to work in the opposite direction. Back in the good old days when the cash ISA allowance was restricted to somewhere in the region of £3000, it was normal for interest rates on ISAs to be significantly higher than on normal savings accounts. The reason being that banks were able to use ISAs as a loss-leader, offering higher interest rates than they would be able to offer on large amounts of cash, with the relatively low ISA limit acting as a natural cap on how big a loss they would make per customer. Increasing the limit to £20K is what killed the premium interest rates that cash ISAs used to attract. 

Cutting the limit to £12K may not be enough to bring back the days when ISA interest rates were higher than normal savings accounts, but it won't result in downward pressure on interest rates. If your rates have fallen I suspect it's just a reflection of the fact that interest rates in general have been in a gradual downward trajectory for months, and that trajectory is likely to continue for a while yet.

eskbanker

x44 said:

Tommaso46 said:

...I am VERY UNHAPPY about this because I'm old and I rely on the interest from ISAs to supplement my pension...

Then again think yourself lucky you didn't work in the 1970's...

I wouldn't be surprised if the number in OP's username was their year of birth, and even if not, it's distinctly possible that they did work in the 1970s!

Tommaso46

Good guess. I was indeed working in the 1970s. You don't need to tell me anything about it !

jimjames

london21 said:

I started with cash ISA and moved to index funds. Think some people just do not like risk.

You could also say that some people don't understand risk. Risk isn't all or nothing, remaining in cash for decades is risky due to losing out to inflation but not seen as such because your capital value remains the same.

Tommaso46

My Kent Reliance Cash ISA will drop from 4.13% to 3.83% after 11 December. That’s a cut of 0.30 percentage points, which is  a MASSIVE 7.3% reduction relative to the original rate. So I'll be shopping around for a different provider. One that doesn't require an app because I don't keep any banking info on my phone.