Isa limit: Use it or lose it

It's getting ever harder for savers to find even a half-way decent deal on their cash Isas. So what can you do? James McKeigue explains.

Something strange is happening this year. The period after Christmas in the run-up to the end of the tax year on 5 April normally marks the peak of the individual savings account (Isa) season. Newspapers and websites start to fill up with adverts proclaiming the best deals and incentives.

But this year has been far quieter. Apart from one or two new entrants, the market is pretty dull. Many banks and business societies seem to be sticking with their existing deals. There's nothing wrong with that in itself. I'm sure you don't miss the adverts. What does worry us is that this seems to be part of a wider trend the banks just don't seem to care about cash Isas anymore.

Normally banks are desperate for deposits, which they can then lend out at higher rates. But last year the Bank of England launched the £80bn Funding for Lending Scheme, which gave them access to cheap money. That seems to have tempered the banks' demand for our cash, hence their more relaxed attitude to Isa marketing. It has also hurt the rates on offer.

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This year cash Isas offer just 1.74% on average compared to 2.55% around the same time last year. That means that, adjusted for inflation, as measured by the retail price index, currently at 3.1%, the real value of your savings will fall in an Isa even allowing for the fact that you receive your interest tax-free.

It's not just new customers that are getting the cold shoulder either; banks are treating existing ones pretty shoddily too. One of their favourite tricks is to quietly drop bonus rates offered to entice you in and leave savers who don't spot the change on miserably low rates.

Indeed, recent research from The Daily Telegraph revealed that the difference between the interest offered on a new deal and an existing one can be as much as 1.65% and that's with the same bank.

So what can you do? Switch into the Isas with the best rates. That's getting easier to do too. A new electronic Isa transfer system now gets cash Isas switched in fewer than 15 working days in 90% of cases, according to consumer watchdog Which? Another piece of good news is that an increasing number of Isas now allow you to transfer in' to new deals from poorly paying older ones.

The fact that banks have got lazier in the Isa market this year in terms of competing for your money doesn't mean that you should relax too. There are still some good cash deals out there.

We've taken an in-depth look at the market and found the best offers available. However, do note that, as the deadline for putting your money into an Isa (5 April) approaches, more deals will come along, so keep your eyes peeled. And don't forget that if interest rates rise in the future as inflation picks up you'll benefit from any rate hikes tax-free.

In today's volatile environment, stocks and shares Isas are a valuable tool for helping to protect your income and capital returns from tax. The annual Isa tax-free allowance is made available on a use it or lose it' basis only, so if you haven't used your 2012/13 allowance by 5 April, you'll have missed the boat. That would be a shame.

By consistently using your allowance each year you will steadily cover a growing section of your portfolio in a flexible tax-free wrapper.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.