Cash ISA savers need annual tax free allowance of up to £8150 to match 2012 returns

Andrew Hagger of highlights how much Cash ISA allowances would need to increase for savers to be able to earn the same returns as this time last year.

It’s been well documented how the government’s Funding for Lending Scheme (FLS) has had a devastating effect on savings interest rates.

However, if by any remote chance the Chancellor wants to repair some of the damage and restore the interest income levels to those of 12 months ago it would involve increasing the tax free allowance for ISA savers by as much as £2510 rather than the already agreed £120.

Because interest rates have slumped so dramatically, in some instances the ISA allowance would need to be increased by more than 20 times the £120 planned rise, to enable savers to invest enough to earn the same interest return.

For example the best 1 year fixed ISA this time last year paid 3.25% and would have delivered an interest rate return of £183.30 over 12 months. The best 1 year fixed ISA rate is now just 2.25%, so to earn a return equivalent to last year you’d need a Cash ISA balance of £8150.

Even if the ISA limits were hiked by such levels, there would be many people who simply wouldn’t be able to find the extra cash needed to take advantage of a larger allowance.

A Cash ISA increase of these proportions isn’t going to be something George Osborne will have on his Budget must-do list, but it’s time for a serious look at the damage his FLS scheme is having on savings returns for millions of UK consumers.




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