Warning over cash ISA headline rates - why you could end up with a poor deal

Savers are being warned over cash ISAs that came with a bonus rate.

As of the end of October, five of the top 10 paying instant access cash ISAs offered bonus rates, rising to nine of the top 25, according to Moneycomms analysis for Investec Save.

The average bonus rates offered across these accounts over the first 12 months was 1.68%, ranging from as low as 0.49% to 3.16%. The bonus rates made the ISAs competitive and are a great incentive to draw savers in.

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But once the bonus rates expired, these cash ISAs fell down the rankings - just two ranked in the top 50 and seven dropped out of the top 100.

Andrew Hagger, from Moneycomms, said: “The use of bonus rates in the cash ISA market is quite commonplace but there is a big downside for consumers who forget to switch. If you don’t remember to move your money upon bonus expiry your cash could be earning as little as 1% in some cases.”

If you signed up to an ISA with a bonus rate over 12 months ago, now is the time to switch. See our round up of the best cash ISAs for the latest deals on the market now.

Not all providers let you transfer your cash ISA across to them, but if they do, it’s a relatively straightforward process. You just have to request the transfer by filling out a form provided by the ISA provider you’re transferring to.

Make sure you factor in any early withdrawal penalties for transferring your any cash from a fixed-term ISA account.

Cash ISAs in the spotlight

This could be a good time to review your cash ISA, especially as the chancellor Rachel Reeves is reportedly looking to slash the cash ISA allowance from £20,000 to £12,000 in the Autumn Budget.

The chancellor could cut the limit in a bid to get savers putting more of their cash into stocks and shares instead, in a bid to boost the economy.

Recent analysis from investment platform AJ Bell found a one-off investment of £1,000 in 1999 would now be worth £6,285 if invested in the average North America fund, compared to just £2,079 if held in the average cash ISA.

Even UK equity funds, despite two decades of market challenges, would have grown the original £1,000 to £3,787, comfortably beating cash returns and inflation over the same period, AJ Bell said.

Andrew Gall, head of savings at the Building Societies Association, said: “We support efforts to help more people to invest and grow their wealth, especially in the UK, but cutting the cash ISA limit simply won’t achieve this.

“Instead it would undermine one of Britain's most successful savings products and a stepping stone that has helped millions to build financial resilience and confidence to invest for their future.”