Interest gap narrows between ISAs and standard accounts

| March 28, 2012 | 0 Comments
Interest narrows between ISAs and standard accounts

There are just a few days left for savers to use their Isa allowance for the current tax year, which ends on 5 April.

However, savers who miss out on this year’s allowance may get almost as good a deal from an ordinary savings account according to new research by
consumer group Which?

Isas have traditionally offered a higher rate of interest than standard savings account because of their tax-free status.

Which? now reports that the average interest rate on a cash Isa is just 0.44 per cent higher than the average standard savings rate.

In comparison, in 2000 the difference between the average cash Isa and savings account was almost 2.8 per cent.

In February 2000, the average instant access cash Isa rate on a balance of £3,000 was 6 per cent, while the average rate on a standard savings account before tax was just 3.21 per cent.

Which? money editor James Daley said: ‘Many savers understandably assume that they will be better off in their bank’s cash Isa than they will in a taxed savings account – but all too often, that just isn’t the case.

“We’d like to see all banks and building societies promising to ensure their cash Isa accounts pay at least as much as their equivalent standard accounts after tax – if not significantly more – so that Isas once again provide people with a real incentive to save.”

Separate research by broker TD Direct suggests that stocks and shares ISAs are now more popular than cash ISAs.

DT Direct’s Global Investor Confidence Study found that 77 per cent of respondents had invested in stocks and shares ISAs in the 2011/12 tax year, compared with just 53 per cent who had invested in a cash ISA.

TD Direct has conducted the study for six years and it is the first time stocks and shares ISAs have been the more popular option.

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