Branch savers losing out on top online Isa interest rates

Long-suffering savers going to bank branches for their individual savings accounts (Isas) are being denied valuable interest as more of the best accounts are made available only online.

Savers are losing an average of £20 a year in cash gains by opting for in-branch individual savings accounts (Isas) and not taking advantage of more attractive offers online, according to research out today.

Online cash Isas pay 7.3 per cent more in interest than products on sale in branches, analysis by Governor Money revealed.

The findings come as savers are warned that interest rates could remain at 0.5 per cent for another three years, prolonging the pain for millions who have the value of their savings wiped out by inflation in recent years.

Average savings rates have fallen by around 2.35 per cent since the beginning of 2008, according to consultants Capital Economics, costing savers some £22 billion a year in interest.

The amount of deposits earning no interest has risen fourfold over that period, it added.

The Bank of England kept the base rate at 0.5 per cent on Thursday, marking three years at the record low, and Capital Economics believes they may not rise until 2015.

Yet new figures show that many savers are still failing to take advantage of their annual tax-free Isa allowances, while millions are missing out by failing to look beyond branch products.

The average online Isa currently pays 2.64 per cent a year, compared with the typical 2.46 rate paid by in-branch accounts, Governor Money’s figures show.

However, it estimated that around half of savers with an Isa have never opened an account online. Two-thirds of savers say they are unlikely to open an Isa online over the next year, with just a fifth expressing an intention to do so.

Miles Bingham, chief executive of Governor Money, said: “Savers who overlook online Isas are missing out on additional interest. We are in a low interest rate environment and for those with an average balance, an online account is a great way make your money work harder.”

The research is published days after a survey by uSwitch.com revealed that 51 per cent of cash Isa savers “have no idea” what interest rate they are getting.

Almost half of savers have never switched their Isa to a better deal, despite a sharp increase in the number of accounts with bonuses that typically revert to meagre rates after the first-year. Just one in four savers plans to use their full cash Isa allowance of £5,340 this year, uSwitch found.

Meanwhile, the government has rejected calls to allow parents holding child trust funds (CTFs) to open junior Isas, the child savings accounts launched last November to replace CTFs.

Mark Hoban, Financial Secretary to the Treasury, said in written response to a House of Commons question on Thursday that the government would not revise its decision to prevent CTF holders from transferring into or setting up a junior Isa.

“Although both types of account provide children with broadly equivalent tax-free savings vehicles, there are regulatory and administrative differences between the two.

“These differences are a necessary consequence of the fact that the CTF was a universal scheme which received government contributions, whereas Junior Isas are voluntary and privately funded.”