The base rate has been at 0.50 per cent for more than two years now, and in that time, cash ISA savings rates have been taking a real battering with around one in eight paying 0.50 per cent or less.

The trouble is, of those whose ISA rates have plummeted, many don’t even realise that their savings are sitting around in low paying accounts earning next to no interest. Could this be you?

Sorry savers

Attractive introductory rates and bonuses on ISA deals pull savers in, but many either don’t realise or don’t remember that after a fixed time, these offers come to an end and the account reverts to earning little or no interest, as Julie Smith, savings analyst at Fair Investment Company explains:

“There are many ISA savers out there earning next to nothing on their savings, and this is not because there are no good rates out there. These ‘sorry savers’ are really losing out, because they leave their money in poor paying accounts just because an introductory offer was good, or because they simply don’t check their rate and have no idea it is no longer as competitive as they thought.”

Julie says it is really important that these ‘sorry’ savers become more savvy, and start taking a bit more notice of what is happening to their hard earned cash, because, with inflation at 4.00 per cent, not only is their cash not earning any interest, but in real terms, it is actually losing value.

Savvy savers

“It is not difficult to be a savvy saver,” explains Julie “and there are many ways to be savvy with your savings, but in the main, to be savvy you will generally do one of the following; constantly switch accounts so you always have the best deal, or find a longer term deal that suits you.”

Chase the rate

As with any financial product, car insurance, credit cards, utilities, being rate smart can really pay off. If you are constantly checking your deal, and switching to something better if it becomes uncompetitive, not only are you getting a better rate for yourself, but it forces providers to compete for your business, which ultimately will result in better deals.

Generally, the longer you are prepared to tie your money up for, the higher the rate you will receive.

However you need to consider that the base rate may go up during the fixed term period and this could mean that your once market leading rate is no longer competitive.  Many people prefer to keep their options open by choosing a shorter term or variable rate, either because they don’t want or can’t afford to tie their money up for a fixed period of time.

“There are plenty of people that take this ‘chase the rate’ attitude to saving, and this could really pay off, as long as you are fully aware of the terms and conditions of your deal,” warns Julie.

“For example, you should make sure that you are keeping track of when the introductory offer ends and if there are any penalties for transferring out within a certain time period.”

If you are this type of saver, you need to remember to start looking around for new rates well before you lose the advantage of the introductory bonus rate. Another point to note is that not all ISA accounts accept transfers in from ISA savings made in previous tax years.

One of the best rates around at the moment is the Halifax ISA Direct Reward which does accept transfers in from previous years’ ISAs. This account currently offers a rate of 3.00 per cent AER (variable) for the first 12 months, reverting to the base rate after the introductory period, and also has the benefit of Halifax’s ‘ISA Promise’ which offers to pay interest from day one of receiving your completed transfer application form rather than waiting for your existing ISA provider to complete the transfer.

This means that you do not have to worry about missing out on interest if your ISA transfer takes longer than expected.

Pick a fix

If you don’t have the time or inclination to keep switching to ensure you have the best deal, you can still be a savvy saver, as long as you pick your ISA carefully.

For example, if you are able to fix your ISA, you could consider the RBS 3 Year Fixed Rate Cash ISA paying 3.70 per cent AER. You are able to transfer previous years’ ISAs into this account. However you need to be sure that you won’t need to access the money during this time as partial withdrawals cannot be made and charges may apply if you close the account early.

“Fixed ISAs may not always be at the top of the table, but they do have the benefit of offering consistently competitive rates, and as long as you are happy to tie your money up, you don’t need to worry about the ISA rate changing until the end of the term,” explains Julie, but warns that fixing your rate does have its disadvantages too, the main one being that if you choose to fix for a longer period, you won’t stand to benefit from any potential increase to the base rate over the coming years as you would with a variable rate.

Julie concludes, “Whether you are always on the pulse, or way behind the game, you can still be a savvy saver, you just have to know which ISA account suits your saving habits.”

For a wide range of cash ISA deals, see cash ISAs

© Fair Investment Company Ltd