'Super Isas' unleash £1bn pent up savings

Savers are expected to deposit more than £1 billion into “Super Isas” over the next 72 hours, with experts warning the flood of money may prompt cuts to interest rates, reducing savers’ incomes and undermining a key Conservative election strategy.

Vast numbers of savers held back from putting money into Individual Savings Accounts (Isas) after the Chancellor announced in the Budget in March that he was trebling the tax-free savings allowance to £15,000. Just £6.7 billion has been deposited so far this year, compared with £13.3 billion in the same period in 2013.

Until today, the Isa limit was £11,880 each year, but only half of this could go into cash, with the rest in stocks and shares accounts. The reforms scrapped the distinction between cash and shares, effectively trebling the amount that can be put into cash Isas – a boost to cautious savers and pensioners who cannot risk stockmarket investing.

A source said banks expect as much as £1 billion “pent up” money to flow into the new Isas this week. Another £4 billion is expected to be deposited by the end of the month.

However, banks and building societies privately admit they do not want savers’ cash, as they can make “little or no profit” at the interest rates they must offer today to enter the best buy tables. City sources predict banks may reduce rates rapidly to dissuade custom, and prevent savers transferring in money from Isas opened in previous years.

Isa rates have seen 92 cuts since the Budget, according to industry monitor Savingschampion.co.uk., by providers including Halifax, Santander and NatWest. In some cases, rates have been reduced by as much as 40pc. On average, they have fallen from 1.41pc at the beginning of the year to just 1.23pc today.

Ian Gordon, a banking analyst at Investec, said further reductions loom. “The big banks are all sitting on a surplus of cash and are not growing their loan books – so they simply don’t want or need deposits from savers,” he said.

Further reductions to rates, or blocks on switches, would hit those who rely on interest from savings to top up their pensions. Campaign groups warned that this could threaten the Tories’ position in the polls.

Simon Rose of Save Our Savers said: “It might have been trumpeted as a “Budget for savers” but the an elephant in the room is interest rates, which have fallen so low that many people are struggling to maintain living standards.”

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