Older ISAs can often be less generous with interest (Image: Laurence Berger via Getty Images)
Faithful cash ISA savers have been repeatedly penalised by maintaining their funds in closed accounts that lag behind the best rates by more than two percent, fresh research from Moneyfacts has discovered. Financial specialists warned that cash ISA savings are frequently overlooked and require active management, similar to investments.
Presently, savers are forfeiting £416 annually by retaining their £20,000 cash ISA allowance in the average closed easy access ISA account at 2.49 percent compared to the leading deal, which offers 4.57 percent. The warning arrives as the current tax year concludes on Sunday, April 5, with ISA allowances resetting on Monday.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “Millions of savers could be missing out on hundreds of pounds each year by leaving their money in older, underperforming cash ISAs instead of switching to the most competitive accounts on the market. While interest rates have risen significantly in recent years, many loyal ISA customers have been consistently penalised by holding their cash in ‘closed’ accounts that trail behind the most competitive accounts by over two percent, reflecting a wider trend where the most competitive rates are often reserved for new customers.
“Providers will often prioritise higher rates for new customers as a way to attract fresh deposits to help manage costs or fund future lending. Currently, someone with £20,000 in the average closed easy access ISA account is earning just £498 in a year, compared to £914 they could be earning in the top easy access cash ISA.
“The incentive to switch quickly becomes clear when faced with a £416 shortfall, an amount many savers can’t afford to miss out on, particularly amid ongoing financial pressures. However, when rates were closer to their peak, the gap cost loyal savers as much as £504.
Nouran Moustafa (Image: Nouran Moustafa/Newspage)
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“With the new tax-year now only days away, savers have a fresh opportunity to review their ISA and make sure their money is working as hard as possible. Transferring to a more competitive account can be a simple way to boost returns without affecting this year’s allowance and, most crucially, it protects the tax-free status of those savings.”
Financial specialists cautioned that complacency was proving costly for many. Joe Farmer, Independent Financial Adviser at The Retirement Studio, said: “Doing nothing is costing a lot of people a lot of money. Reviewing your cash ISA is crucial when hundreds of pounds are at stake.
“ISA providers will usually target new business with their best rates and people need to be alive to that fact, as the loyalty penalty can be severe. £416 is not a small amount, especially in the current climate where prices are rising and every penny counts. People need to be savvy with their savings and ensure they are working as hard for them as possible.”
Philly Ponniah, chartered wealth manager and financial coach at Philly Financial, identified the core problem as the “set and forget” mentality adopted by numerous savers.
ISAs are tax-free, but that’s not the end of it (Image: designer491 via Getty Images)
She continued: “Cash ISAs feel safe, so people assume they’re sorted, but providers rarely reward loyalty. New customers get the headline rates, while existing savers drift onto uncompetitive ones.
“Two key points stand out. First, switching is low effort but high impact. Moving a £20k ISA from 2.5 percent to 4.5 percent is effectively a risk-free pay rise on your savings.
“Second, the wrapper matters. Transferring keeps the tax benefits intact, whereas withdrawing and redepositing can accidentally wipe out your previous contribution and count as a fresh one.
“The bigger picture is that cash savings need active management, just like investments. A quick annual check can be the difference between your money almost standing still and just about keeping up with inflation.”
Nouran Moustafa, practice principal and IFA at Roxton Wealth, also stressed that active management is essential: “£416 is not just a nice extra, especially when all someone has done is leave their cash ISA where it already was. That is the part people need to wake up to.
“So many savers think ‘I have an ISA, job done’, when in reality the account can quietly become lazy, weak and not fit for purpose while the provider saves its best rates for fresh money. That is exactly why people need to stop treating cash ISAs like furniture.
“Check the rate, check whether it is still competitive, and if it is not, transfer it properly. Do not withdraw it and mess up the wrapper.
“For me, this is less about clever saving and more about basic self-protection. In this market, leaving cash in a dead ISA is not being loyal or cautious, it is just letting your money underperform while someone else gets comfortable. And with costs still high, that is not a harmless admin mistake, it is money people could actually feel in real life.”