Little help for savers in Budget – so where should you put your cash?

There was very little for savers in the Budget and nothing much for ISA holders, except confirmation that indexation of the maximum investment would remain.

Moneysupermarket.com is calling for the Chancellor to help savers by introducing a code of conduct for ISA investors who lose considerable sums in interest when they switch providers. They would probably do better to organise the ISA providers and get them to put together a voluntary code of conduct – possibly by lobbying TISA (The Tax Incentivised Savings Association). The Chancellor undoubtedly has more pressing things on his mind.

But Moneysupermarket is right to take up the cudgels on savers’ behalf. It wants accounts to be switched within seven days to minimise the losses suffered totalling almost £600,000 across the industry for every day transfers are delayed.

Some 18 million savers have £167 billion invested in cash ISAs and are potentially losing out on huge sums in interest as banks deliberately drag their feet in carrying out the paperwork when investors request a transfer to another provider.

Currently there are no strict timescales. Although the process should be relatively straight forward, many banks take far too long to do this - in some cases well over a month. ‘In the days when the banking system largely relied on paper to perform tasks you expected things to take a little time,’ commented Kevin Mountford, head of banking at moneysupermarket.com. ‘In the electronic age, there is no real excuse to take longer than seven days to transfer ISAs from one bank to another.’

So make the most of the tax free return on ISAs by shopping around for the best rate – in particular, check on what you are earning on existing ISAs as you could have substantial sums tied up in accounts which are paying little or nothing.

Rates paid on ISAs are poor but Nationwide has just launched a market leading three-year Fixed Rate ISA paying 4.00% gross for balances of £1 or more. This compares with the best one year fixed rate ISA deals from the Post Office and Northern Rock which are paying 3% fixed for one year for sums £500 or more. Neither of these accounts is available online but you can open an account at a branch or by post, or on the telephone at the Post Office account only.

The best variable rate ISA is from Nationwide Building Society which is paying 2.75% on sums of £1 or more with no penalties for withdrawals. You can open an account online at . Newcastle Building Society (www.newcastle.co.uk) is also paying 2.75% but you must give 120 days’ notice of any withdrawal. Minimum investment is £500 and you can open an account by post, at a branch or by telephone.

Not all ISAs will accept transfers from other providers but with considerable sums accumulating in poorly paying accounts it is worthwhile considering a switch to Birmingham Midshires (www.bmsavings.co.uk) five year fixed rate ISA bond paying 4.25% tax free on sums of £500 or more. Check with existing providers if there are penalties for moving or whether you need to give notice of moving.

Fixed Rate Bonds

Increased uncertainty about when interest rates will start to rise continues to favour a short-term investment if you have larger sums to invest. Aldermore is at the top of the one-year fixed rate bond table offering 3.05% on sums of £1,000 or more and you can apply for the bond online, by post or on the telephone. (www.aldermore.co.uk). Santander is close behind paying 3.01% on sums of £10,000 or more – but you can only open an account at a branch.

There are several deposit takers vying for third place, paying 3% fixed for one year including Northern Rock (postal only – details at www.northernrock.co.uk) Barnsley Building Society (www.barnsley-bs.co.uk) and the Post Office (www.postoffice.co.uk) on sums of £100 to £500 respectively. Both the Post Office and Barnsley offer an online facility. ICICI Bank is paying 3% too on sums of £1,000 or more. Full details at www.hisave.co.uk.