Monday, 2 April 2012

Absurd Cash ISA bonuses

Advertising for Cash ISAs gets ever more ridiculous.

Excitement is being whipped up because the end of the tax year is looming this week, so it's your last chance to use one year's tax-free allowance and first chance to take advantage of the next allowance.

You see some juicy rates, then realise that most of the interest is in the form of a bonus which will disappear after a year.

AA is paying 3.5%, but 3% of that is a first-year bonus, Santander offers 3.3% of which 2.85 is a bonus and Cheshire is trying to tempt savers with another thumping 3.5% - but 2.5% is a bonus which is later removed.

So the underlying rates are: AA just 0.5%, Santander a mere 0.45%, Cheshire only 1%.

The whole ISA race is like an episode of the obstacle show, "Total Wipeout".

You have to negotiate the bonus rate hurdle, check if they'll only deal over the phone or the internet, winkle out whether the minimum deposit is £1 or a hefty £2,500 and ask if you can transfer money from an old ISA to the new provider.

Congratulations if you get to the end of the course without feeling battered and bruised!

Only the most careful savers, with time to spare every year to do the research and move their money, have a hope of making a decent return

Some ISA providers offer a simpler product. M&S quotes 3% with no bonus booby-trap and Virgin Money's rate is 2.85%, again unsullied by bonus shenanigans and asking for a minimum deposit of just £1.

Surely if the intention of the tax break is to promote long term saving, then we should have more long-term, reliable interest rates - not an annual scramble in which a lot of people end up losing out?

The system we have results in the average interest rate on an up-and-running Cash ISA languishing at a truly terrible 0.65%. That's not my calculation: it's from the Bank of England.

You can compare rates by looking at comparison sites such as MoneyfactsMoneysupermarket, and Moneynet.

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