Every March and April, it’s cash ISA season. Banks and savings institutions fire out very hot rates – typically 0.5-1 percentage point higher than the best buys from before the cash ISA season started.
The reason is simple. One ISA year ends on 5 April, the next starts on 6 April – so you have two years’ worth of ISA openers clamouring to get their tax-free savings cash sorted at the same time.
For the first time though, I’m questioning whether we’ll actually have an ISA season this year.
Savings rates are depressingly low. Even in the current era of the 0.5% UK base rate, savings rates are dire. In the last few months, cash for banks has been available from the Funding For Lending scheme, so banks haven’t needed to raise money via deposits. Therefore, savings rates have nosedived.
Where once 3% was the minimum you could expect from the top of the best buy tables, now rates have plummeted through that floor and the top accounts barely scrape above 2% (see the Top Savings Accounts guide).
The rates for cash ISAs have fallen too – though not quite as far, 2.5% is still just possible.
My concern is things are so bad, banks don’t want to top best buy tables. In fact, we’re seeing the perverse situation that when they find themselves there (usually because another bank that was paying more has dropped its rate, leaving them exposed at the top of the pile) they quickly cut rates to escape it. So much money floods their way, they’re too highly exposed even to keep rates at 2.1%.
If we do have an ISA season this year – with rates rising rapidly – I’m guessing it’ll be primarily focused on products that don’t allow you to transfer in past years’ money. That way, providers’ maximum exposure is limited, and cash ISAs are good bait products – they can offer a higher rate, build their brand, and use their headline rates to show their ‘competitive’ credentials.
This will be done for the associated branding gain from being top of the pile, but still only exposing the bank to around £5,000 per person at a loss-leading rate, rather than the potential for £100,000s worth of old ISAs to be shifted in.
I hope to be proved wrong.