Savers are piling money into cash Isas at breakneck speed to avoid paying tax on their interest.
But many of the big banks – where a huge chunk of tax-free cash is parked – are offering dreadful rates which will only worsen.
In October savers put another £4.2billion into cash Isas, bringing the total up to £435billion, Bank of England data shows.
These accounts are a crucial tool for savers. As your savings increase, you will be swept into the tax net if you stick to non-Isa accounts.
With top rates of 4 per cent, you will pay tax if you have over £25,000 in savings as a basic-rate payer.
This will give you £1,000 interest, which is the limit in ordinary accounts before taxes kick in.
For higher-rate payers, the limit is just £500 – so anything over £12,500 will mean you pay some tax. Additional-rate payers pay tax on all their interest.
In October savers put another £4.2billion into cash Isas, Bank of England data shows
More savers are looking to Isas to avoid paying tax on their interest, but many of the big banks are offering weak rates on their cash Isas
But with interest rates falling, you need to check if you are in a decent tax-free Isa.
Big banks pay the poorest rates and they are set to get worse following this month’s cut in the Bank of England base rate from 4 per cent to 3.75 per cent.
Here you are fobbed off with rates of just 1 per cent to 1.5 per cent.
To switch to a better deal, ask your new provider to carry out the transfer. Do not move the money yourself as you could lose the tax-free status on it.
But first, check your new provider lets you transfer existing Isas.
Most do, but there are exceptions including the top paying easy-access account from Atom Bank at 4.25 per cent and the best one-year fixed rate, Investec Bank at 4.3 per cent.
Top easy-access rates which accept transfers include Charter Savings Bank Easy Access Isa issue 70 at 4.09 per cent and Vida Savings Easy Access Isa Issue 3 at 4.05 per cent.
Ford Money also has a Flexible Isa at 4.04 per cent with Cynergy Bank Online Isa issue 60 and Kent Reliance Easy Access Cash Isa Issue 70 both at 4 per cent.
On one-year fixed rate Isas, Vanquis Bank pays 4.2 per cent and Co-op Bank 4.15 per cent.
The worst easy-access deals include Barclays Instant Cash Isa, which pays just 1.06 per cent.
Halifax Instant Isa Saver and Isa Saver Variable pay 1 per cent on balances up to £25,000. On balances up to £100,000, the rate is just 1.05 per cent and above this 1.1 per cent.
These rates could well fall in the next few weeks. Santander Isa Saver also pays 1 per cent and may drop.
HSBC Loyalty Cash Isa is the best of a bad bunch. Only on offer to its current account holders, it pays 2.5 per cent or 3 per cent for those with a premier current account.
It’s not just the big banks with poor rates. Metro Bank’s is just 0.9 per cent.
Buckinghamshire, Chorley and Harpenden cash Isas also pay 1 per cent to 1.5 per cent.