NISAs – Not that Nice After All

By: MoneyFacts

A year ago George Osborne increased the ISA allowance to a whopping £15,000, enabling savers to stash more money away tax-free.

However, a year on and the ISA market is just as disappointing. In fact, since the launch of the NISA, rates have fallen ever further, with the average ISA rate dropping from 1.57% in July 2014 to just 1.44% today.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:

“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.

“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.

“This reduction was partly due to the fact that the new limit caused many providers at the top of the Best Buys to become oversubscribed really quickly, leaving them with no other option than to reduce rates or withdraw their products completely.

“The growing popularity of Peer-to-peer (P2P) lending could also be attributed to a lack of activity in the ISA market thanks to its potentially lucrative returns. 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.

“It’s not all doom and gloom for ISA savers, however. Those savers who invested the full £15,000 allowance last year in a one-year fixed rate ISA would have earned £160 more than if they had kept their savings at the older limit of £5,940.

“Nevertheless, it’s hard to escape the fact that while it’s great that the Chancellor is trying to encourage the savings habit by increasing the ISA limit, this has had little to no 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.”

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