Record low ISAs

Returns on tax-free savings have fallen to record lows, according to the Bank of England.

The average interest rate for a cash ISA, or Individual Savings Account, dropped to 1.43 per cent in August.

It's the smallest reading since the Bank started calculated this average in 2011.

Returns from notice accounts, including ISAs, are at their lowest since records began in 1999.

Interest rates have been at rockbottom levels for 6 years, but banks and building societies have trimmed them even further in recent months.

Two weeks ago 400,000 savers with National Savings & Investments ISAs were told their rates would be cut from November.

Mortgage borrowers are benefiting from the same trend, with their interest costs also at the lowest level in recent records.

National Savings cuts rate

More than 400,000 National Savings customers will see their interest rates cut from mid-November.

National Savings & Investments will cut the rate on its tax-free ISA account by 0.25% to 1.25%, after finding itself with bumper inflows of cash.

The Direct ISA, with market-leading returns, had been attracting upwards of £800m a year from savers desperate to find a reasonable return, while taking advantage of a 100 per cent government guarantee.

Even more significant was the boost from the highly popular Pensioner Bonds and by the Premium Bond maximum limit going up to £50,000.

Jane Platt, Chief Executive, said it was a "difficult decision" but the institution had to "strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector."

The cut will apply to £3.8 billion of savings from 16th November.

How to get a Pensioner Bond

Pensioner Bonds are an exclusive investment for the over-65s with a rock solid government guarantee and market-beating rates of interest. But how can you get them?

When are Pensioner Bonds available?

They won’t be available until January and we won’t be told the exact day on which applications open until that day actually dawns.

For that reason, it’s a good idea to register on the National Savings & Investments website, if you haven’t already, to receive the information. Here is the link.

Which is the best way to apply?

When the day comes in January, you will have the choice of applying over the internet (via National Savings), by phone or by post.

There could be a rush to apply, so the postal method could take too long. Funnily enough, you would have to download the form or phone up for it in any case.

Many will opt for the internet, as long as the website doesn't freeze up, rather than risk being held on the phone for ages.

Which bonds should I buy?

You can put between £500 and £10,000 in a fixed rate 2.8% one year bond and between £500 and £10,000 in a 4% three year bond.

Obviously most people will have less than £20,000 to salt away and a large proportion will be investing less than £10,000.

If you are one of those and wondering which bond to choose, it is worth noting that the three year bond appears to pay a better rate of interest even if you cash it in after a year and pay the penalty of 90 days interest.

But both of them pay more than equivalent bonds from banks and building societies.

What do I need to have with me when I apply?

If you are applying over the internet or by phone, you will need to have your debit card handy. It has to have your name on it.

You will be asked to give your bank details and to enter your address.

They might send you a form by post for you to sign and confirm the application.

Applying by post, you would have to get hold of the form, fill it in and send it back with a cheque.

When will they take the money?

If you apply online or over the phone, the investment is deemed to have started on the same day, even if they ask you subsequently to complete a confirmation form by post.

You will receive confirmation by email or, if you choose, in a letter.

If you apply by post, the investment would start on the day the application is received, assuming in both cases that the bonds haven't been over-subscribed by that time.

When will I get my interest?

The interest is paid on maturity, in other words at the end of the investment term, or when you cash in the bond.

So it's a good way of salting money away for a decent rate of interest, but not much use if you are looking for an account which pays you interest every month.