Savings rates: Will we see an Isa season this year or even more cuts?

With less than 50 days to go until the end of the tax year, savers are likely wondering whether or not they will see an ‘Isa season’.

This is where banks and building societies offer top rate tax-free deals to snap up money from those looking to use up any spare money from their £20,000 Isa allowances before the end of the tax year.

However, a combination of falling rates and the 2016 introduction of the Personal Savings Allowance, which allows basic rate taxpayers to earn £1,000 in interest a year tax-free, have in recent years dented enthusiasm and turned Isa season into a damp squib.

Last year a saw one of the better Isa seasons in recent times, with big banks and building societies including Santander, Nationwide and Coventry Building Society all getting involved and offering better rates in the run up to 5 April, even if some were only available to certain customers.

Anna Bowes, co-founder of website Savings Champion, said at the time the involvement of the UK’s fifth-largest bank Santander was ‘a good indication that the Isa season is in full swing, whatever that might mean these days.’

But what do Isa rates look like now, compared to 2019, and will we see a number of top tax-free deals crop up in the six-and-a-half weeks until the tax deadline?

How have rates changed over the last year?

Unfortunately, savings rates have fallen over the last 12 months, with Isa rates no exception.

This time last year, the top easy-access cash Isa open to all paid 1.45 per cent. It now pays 1.3 per cent with Leeds Building Society, a drop of £15 interest on every £10,000 saved.

Meanwhile fixed-rate deals have fallen by even more. Last year, the best one-year fixed-rate paid 1.75 per cent and the best two-year 1.91 per cent. 

Now, the best one-year deal pays 1.41 per cent with Oaknorth and the best two-year 1.5 per cent with Gatehouse Bank and Oaknorth.

However, while rates have fallen, interestingly enough tax-free savings rates have not fallen by quite as much as taxable non-Isa equivalents, with the exception of five year fixed-rates. 

The top easy-access Isa, for example, has fallen 6.9 per cent, and the top easy-access savings account 10 per cent.

Meanwhile the top one-year fixed-rate savings account has fallen 23 per cent year-on-year, and the top one-year Isa 19 per cent.

‘But’, Bowes noted, ‘the rates on cash Isas are still lower than the non Isas – except easy access where the best rate on both sort of account is 1.35 per cent. So it’s a tough decision to decide whether to use an Isa or not.’

Will we see an Isa season in 2020?

However, savers hoping for rates to shoot up in the run-up to the tax year, with banks clambering over each other to offer top deals may well be disappointed.

James Blower, industry expert and founder of the Savings Guru, said: ‘I definitely don’t see anything like an Isa season. 

‘The big banks just don’t need the cash and there are not enough of those who do, the newer entrants, to make it competitive enough.

‘The rates on ordinary savings accounts are better than Isas so the vast majority of savers are best using getting the better rate, safe in the knowledge that the personal savings allowance is giving them the first £500 or £1,000 – depending on whether they are a higher or basic rate taxpayer – tax-free anyway.

‘While nothing will change for 2019-20 tax year, the new chancellor may seek to stamp his mark with some changes to Isas or the personal savings allowance.

‘While I think this may be a budget too early for that, Isas are potentially an easy and cheap way for a new chancellor to do a feel good giveaway to beleaguered savers.’

Meanwhile, a senior banker at a challenger savings bank said: ‘My instinct is that Isa season will catch coronavirus.

‘I suspect it’ll be relatively quiet up to the end of the tax year. We may see a few challengers and building societies pop up with a good deal but they’re unlikely to last too long given the overall muted status of the market.

‘I’d be surprised if we see too much from the big banks this year.

‘If economic jitters subside, including coronavirus which is weighing heavily on sentiment, then perhaps things may improve marginally in the new tax year.’

But, he added, given the way that rates have been falling over the last 12 months, ‘if a good deal does come, it’s probably worth grabbing it whilst you can.’ 

At a glance: The best tax-free deals

Easy-access: While the best deal in our tables is offered by Swansea Building Society, this account does not accept transfers from previous cash Isas and is only available to customers living in Wales.

The two next best ‘easy-access’ accounts are both offered by Leeds Building Society, and both pay 1.3 per cent. However, both come with catches.

One is a ‘double access’ account, able to be opened with £5,000, which only lets you take out money twice a year, or else you pay a penalty of 30 days’ interest. 

Meanwhile the other, Leeds’ ‘Limited Issue Online Access cash Isa’, can be opened with a lower minimum deposit of £1,000. 

However, on 4 May 2021 the account matures and is transferred to an ‘online instant access cash Isa maturity account’, after which the rate paid will presumably tumble. Leeds does not disclose the interest rate of this account anywhere.

One-year: The best one-year fixed-rate deal in our tables is offered by neobank Oaknorth, and pays 1.41 per cent. It can be opened online with £1 and accepts previous Isa transfers.

Two-year: Oaknorth also offer the best two-year fixed-rate deal, which pays 1.51 per cent. 

Five-year: The best five-year Isa is offered by Welsh building society Principality. Unlike Swansea’s account, this account is open to everyone, and can be applied for online or in one of its branches in Wales or near the Welsh border in England.

It pays 1.7 per cent and can be opened with £500. 

Junior Isa: The current Junior Isa allowance is £4,368, meaning you can pay this much into your child’s account in the current tax year. It has not yet been announced if this will rise in 2020-21.

The best rate is offered by Coventry Building Society, which pays 3.6 per cent. It can be opened with £1, and opened by post, by phone, or in-branch.