Brits are warned they could be losing money (Image: Getty)
With the end of the tax year approaching, it has been revealed that millions of savers are missing out on thousands of pounds in interest, despite keeping their money in Cash ISAs.
Antonia Medlicott, the founder and managing director of Investing Insiders, has compared returns from different Cash ISAs, warned that many savers are falling victim to the ‘ISA loyalty penalty’. She said: “Far too often I hear people say ‘it’s in an ISA’, as they believe that is enough for them to get a good return on their money. However, it is often overlooked that not all Cash ISAs are equal. The gap between the best and worst rates currently available in the Cash ISA market is striking.” Antonia said that the best accounts are offering around 4.68%. In comparison, some older ISAs are paying people as little as 0.75%. Over time, this will make a huge difference as compounding takes hold. The best ISAs available can generate over seven times as much interest as the worst-paying accounts. The expert continued: “For example, someone who has maximised their £20,000 Cash ISA allowance will see their money grow to £31,598 over 10 years if it is kept in the account, returning 4.68%.
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Some Cash ISAs are more lucrative than others (Image: Getty)
“However, worryingly, someone else earning 0.75 % interest will see their pot sit at £21,551, more than £10,000 less based on interest alone. The average Cash ISA account achieves a rate of 2.9%, which is still nearly £5,000 less in interest when compared to the top accounts across a decade, at £26,652.”
HMRC figures show that the average Cash ISA balance in the UK is around £26,900, and Antonia shows how the impact is even more severe.
She warns: “At that level, the gap between the worst and best rates could cost savers almost £14,000 in interest over 10 years, as the lowest will return £28,987, just more than £2,000 in growth, but those earning 4.68% in interest will have £42,500.
“With £360 billion sitting in Cash ISAs across the UK, if all of this was locked into the highest available rates, collectively savers would receive almost £6 billion more in interest every year. And this isn’t about taking on risk or chasing speculative returns. It’s simply about choosing a competitive savings rate.”
Antonia told Brits that now is the time to switch accounts, with providers rapidly shifting rates to compete for new deposits before the tax year ends. She advises: “This is one of the most competitive years I can remember. What we’re seeing is an ISA rate war.
“Providers are adjusting rates frequently, some even multiple times a week, to attract new users before April 5, and that means the best rates are changing all the time. The best rates aren’t standing still, and neither should savers. Even if you checked your rate a few months ago, it is worth doing so again.
“Online trackers are available that monitor the latest changes and highlight competitive deals as they emerge, allowing savers to stay on top and ensure they are getting the best ISA rate. It takes minutes to check, and it could be worth thousands over the long term.”
Finally, Antonia said that by staying loyal, many savers unknowingly end up costing themselves a lot of money. Small rate changes can have a monumental impact on their returns, and by sticking with the same provider, they could be paying a penalty and missing out on thousands.
She said: “A large number of savers assume their bank will automatically move them to competitive rates or stick with the big traditional brands out of habit or convenience. Unfortunately, those same legacy providers are often the ones paying the least competitive rates.”