People with savings in ISA accounts could be missing out on substantial amounts of interest, it has been claimed.
Many banks and building societies offer new ISA products with attractive but limited rates of interest.
But once the ‘bonus’ or ‘best buy’ period is over – often the first year of saving – the interest rates fall to lower levels. Some ISA accounts pay as little as 0.1 per cent interest.
Andrew Hagger of the financial website Moneynet.co.uk said: “There are some appalling low rates being paid on these tax-free accounts. There are undoubtedly significant sums of money still languishing in these accounts where the rate is so low as to be almost worthless.”
Savers, therefore, are being reminded to check the interest being paid on their accounts and to consider making a transfer in order to benefit from the allowances for the upcoming new tax year.
Michelle Slade of moneyfacts.co.uk commented: “If a bank is at the top of the best-buy charts year in, year out, customers probably think they are getting a good long-term deal on their money.
“But in reality, they may be getting a good deal for one year on a relatively small amount of money, while the bulk of their savings are earning very little interest.”
Transferring funds can be a time-consuming business, lasting as long as 30 days, during which period interest payments are sacrificed. With the new provider having five days in which to set up an account on receipt of the funds, the interest-less span can reach up to 35 days.
Mr Hagger commented: “Most providers do not have an automated process to deal with ISA transfers. The majority of ISAs are still transferred using paper forms, snail mail and cheques.”
However, Mr Hagger went on to say that savers should not be deterred from moving their savings to better-performing accounts. The benefits of much higher returns on a large balance, marooned in a low-paying account, could outweigh the loss of a month’s interest.
Any transfer that takes longer than 35 days will entitle the saver to compensation for lost interest payments.