Savers with more than £10,000 in cash ISA accounts have been warned they could be losing out on significant returns, ahead of a major rule change that will reduce the amount they can save tax-free.
From next April, the £20,000 tax-free ISA allowance will be cut to £12,000 for people aged under 65, under changes introduced by the Andy Burnham government. This means savers will not be able to earn as much in returns from these accounts in the future.
The warning comes as experts reveal that billions of pounds are sitting in older ISA accounts that are unlikely to be offering competitive interest rates. Skipton Building Society has found that these accounts are paying an average interest rate of just 1.94%, despite many newer cash ISA products offering rates close to double that level.
Why older ISA accounts are underperforming
Interest rates have dropped over time, meaning accounts opened several years ago are now offering significantly worse returns than newer products on the market. Many savers do not bother to shop around for the best interest rates, choosing instead to stick with their existing accounts out of familiarity or habit.
Alex Sitaras, head of savings at Skipton Building Society, said: "With many savers continuing to feel pressure from wider living costs, reviewing savings products remains one of the simplest ways people can improve returns on money they already have."
"If you've had an ISA for several years, make sure you check the rate and compare what you're earning with what's available on the market, as many savers don't realise their interest rate is no longer competitive."
Experts urge savers to review rates regularly
Rachel Springall, finance expert at Moneyfacts, highlighted the scale of the problem. She said: "The scale of cash earning such poor rates within an ISA wrapper is a stark reminder of how much savers could be missing out on by assuming their interest rate is still competitive. It's easy for savings to be overlooked, particularly when an account has been held for several years and savers are familiar with their provider or simply don't think to review the rate."
Springall added: "A regular review of savings accounts is well worth the time, particularly for those who are looking to make their money work harder amid ongoing household cost pressures."
What savers should do ahead of the rule change
With UK Savings Week encouraging people to take stock of their finances, Sitaras said now is a good time to make sure savings are working as hard as possible. He advised: "Don't be afraid to shop around or transfer an old ISA if it means getting a better return. In today's market, it's important to review your savings regularly, especially if your financial goals or circumstances have changed."
The changes to the ISA allowance will take effect from April next year, meaning savers have a limited window to maximise their contributions under the current £20,000 limit. Those with older accounts paying below-market rates face a double impact: lower returns now and a reduced ability to save tax-free in the future.
