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Low returns have contributed to 'the worst ISA season on record'

Low returns have contributed to 'the worst ISA season on record'
09/03/2016

09 Mar 2016

The financial analyst group Moneyfacts has described the current Individual Savings Account (ISA) savings market as possibly the ‘worst’ ever seen in the UK. Returns on ISAs are at record lows, while changes due to come into effect in April will see the introduction of a new Personal Savings Allowance (PSA), which will render ISAs’ tax-free advantages irrelevant for most people.

Under the new rules, basic rate taxpayers will be able to earn up to £1,000 in savings interest tax-free and higher rate taxpayers will be able to earn up to £500 in tax-free savings income.

With interest rates so low, this will further decrease incentives to save in ISAs.

Even though this is normally the time of year when banks offer better rates to attract savers, Moneyfacts said that the best easy-access ISA rate was 1.41% - significantly lower than the top rate of 3.15% available five years ago.

Charlotte Nelson of Moneyfacts said: ‘ISAs were once the go-to product for savers as they offered not only tax benefits but also some of the better rates on the market.

‘However, this is certainly no longer the case thanks to almost constant rate decreases. For instance, the best easy access ISA rate has dropped by 0.10% in just six months, making this perhaps the worst ISA season on record.’

She also warned against relying solely on the new PSA, stating: ‘Relying on the PSA alone for your tax-free pot is a gamble – eventually rates will go up, and the amount savers can save tax-free will subsequently diminish.

‘For this reason, ISAs shouldn't be overlooked, particularly if you have larger amounts to save. In addition, ISAs can be passed on to spouses after death, which is worth contemplating when weighing up your long-term interests.’

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