A year ago the NISA, or new individual savings account, was launched to the delight of the savings public. It came with a higher investment allowance of £15,000 as well as added flexibilities, but has it lived up to the hype? Unfortunately, the answer is a resounding no.
It had been hoped that the launch of the NISA would incite competition in the market and lead to a boost in rates, but Moneyfacts' figures show that it's had entirely the opposite effect. In fact, since the launch of the NISA, rates have fallen ever further, with the average cash ISA rate dropping from 1.57% in July 2014 to just 1.44% today.
The ISA market is now even more disappointing than it was a year ago, so even though savers can stash away more money tax-free, they aren't getting the rates that can see them truly benefit from it.
"The NISA allowance looked great on paper and was seen as a surefire way to reinvigorate the ailing ISA market and get more people saving," said Charlotte Nelson, finance expert at Moneyfacts.co.uk.
"However, while many savers are now taking advantage of the new larger limit (which has since been bumped up to £15,240), its launch lacked pizzazz. Indeed, many providers shunned its introduction and even dropped their ISA rates in its wake."
Charlotte points out that much of this could be due to the fact that the new limit meant many best buy accounts became oversubscribed really quickly, so providers had no option but to reduce rates or withdraw their products completely. Another factor could be the growing popularity of peer-to-peer lending, which gives savers the chance to secure higher returns than those paid by traditional savings accounts.
However, although the returns can be high, "savers need to bear in mind that these schemes aren't risk-free and they aren't covered by the Financial Services Compensation Scheme", added Charlotte, so it's only for those who don't mind taking a bit of risk when it comes to investing.
However, it's not all doom and gloom for cash ISA savers. Those who invested the full £15,000 allowance last year in a one-year fixed rate ISA would have earned £160 more in interest than if they had kept their savings at the older limit of £5,940, so if you've got the ability to save more, it could definitely pay off.
Hopefully, more will be done to address the inherent issues in the savings market, as although it's commendable that Government is trying to encourage the savings habit by increasing the ISA limit, it's so far had little effect on savers. "The Government needs to stop papering over the cracks and instead look at the real reason why savers are disengaged, which fundamentally boils down to pitifully low interest rates," concluded Charlotte.
In the meantime, you still want to make the most of things. Average rates may be low but there are still some good deals to be found: if you check out our pick of the best ISA rates, you'll see that you could earn as much as 2.50% if you're willing to tie up your money for five years, or even 1.90% if you want a shorter commitment. Giving a bit of notice to access your savings could pay off, too (the top rate for a 120-day notice deal stands at 2.02%), so if you save as much as you can in a top-paying account, you could still benefit from the NISA – even if it isn't quite as nice as we'd hoped.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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