CHECK YOUR ISA
If you have an ISA which you took out a year ago or more check what rate you are getting. Chances are it is a lot less than the high rate that tempted you to put your money in. You could face losing £150 or more.
It is called ‘bait-pricing’. Fishing for new customers with great headline rates and then slashing them after a year or so hoping the small fry won’t notice once they have been hooked.
Only one in eight customers moves their ISA each year. Chances are the other seven are getting a much worse rate on their money than they think they are.
The campaign group Consumer Focus is so annoyed it has lodged what is called a ‘super-complaint’ to the Office of Fair Trading which now has 90 days to say what it intends to do.
The best variable rate cash ISA currently on the market – the Santander Flexible ISA – illustrates the problem. It pays an interest rate of 3.2%. But after you have had your money in for twelve months the interest it pays plummets to just 0.5%.
If you put in the maximum £5,100 you will earn interest in the first year of £178.50. But in year two that will fall to just £25.50, a cut of £153. So it is a great account in year one. But a terrible deal in year two and beyond.
You cannot move an existing ISA into the Flexible ISA – it is only for new money. Such restrictions are very common and Consumer Focus is also asking the Office of Fair Trading if all ISAs should accept transfers from other ISAs.
Santander does offer an ISA which will accept transfers – the Direct ISA. It pays 2% up to £9000 and 2.75% above that. But again after your money has been there a year both rates fall to 0.5%. If you transfer ISAs worth £20,000 the interest in year one would be £550 but that would drop to £100 in year two – a cut of £450.
A Santander spokeswoman responded “we confirm our commitment to being one of most consistently competitive ISA providers in the UK; we now contact customers and tell them their bonus rate is coming to come to an end.”
Wherever your ISA is, if you opened it a year ago or more, check very carefully what rate you are getting, find a better deal and move your ISA. It could make you hundreds of pounds a year.
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