Coventry building society withdraws Isa paying 3.10% and launches 2.8% deal
The interest rate on a best-buy Isa has dropped to less than 3% for the first time since the tax-free savings accounts were introduced in 1999, with the finger of blame falling on the government’s Funding for Lending scheme.
The Coventry building society withdrew its table-topping Isa paying 3.10% from midnight, and launched a new deal offering 2.8%. The next best Isa, paying 2.75% from M&S Bank, will be pulled on Monday.
Only savers who have built up Isa funds of £40,000 or more in previous tax years can now get 3% by transferring their money to a First Direct Isa. Other more typical savers have the choice of the lower rate from Coventry, an account paying 2.6% from the Welsh building society Principality, available through its branches, or 2.5% from the Cheshire building society and Ulster Bank.
“The reduction in the Coventry rate and the loss of the M&S ISA is a bitter blow to savers as they were two of only three accounts that beat inflation,” said Sylvia Waycot of moneyfacts.co.uk.
“Inflation has remained the same but savers’ interest rates have been absolutely hammered,” said Anna Bowes, director of the financial website savingschampion.co.uk. “Banks and building societies simply do not need to raise a lot of money from savers at the moment primarily because of the Funding For Lending scheme.”
The scheme, launched last August, has provided banks with cheap funds to lend with but as a result there is less pressure on them to attract savers’ money, which has led to significant falls in savings rates.
Cash Isas, which offer a tax-efficient home for up to £5,640 of savings in the current tax year, have traditionally been among the better paying accounts, but rates have come down sharply. According to the latest Bank of England figures the average cash Isa rate is 1.85%, compared to 2.52% in August.