Andy Pandy wrote:
"Norman Wells" wrote in
message ...
Andy Pandy wrote:
"Norman Wells" wrote in
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I wonder about that. If you take cash ISAs as an example of tax
free savings, all that's happened is that the banks and building
societies offer those at rates lower than any corresponding
non-ISA account.

Do they? I've got a regular saver ISA paying 7% with FD, they
weren't offering a regular saver non-ISA paying 11.74% or even
8.75%.

If you take Halifax just as an example, their current cash ISA fixed
rates for 2, 3 and 4 years are 3.5, 3.75 and 4.25%. The
corresponding rates for 2, 3 and 4 year fixed rate term bonds not in
an ISA are 4.0, 4.25 and 4.5%. OK, you'll get back slightly more from the
ISAs than you would
from the term bonds after basic rate tax, but why are the gross rates
consistently lower on the ISAs? It can only be that the bank is
taking or 'sharing' what the government intended should really be
yours. That's unfair, disreputable and underhand in my view.

"Only"? There might be extra admin involved for ISAs. Or more likely
there is a behavioural difference in investors - eg for bonds they
might account for the likelyhood of early closure, or average
investment, which may be different for ISAs.

I doubt that there is any extra administration involved with ISAs, or that
there is any real reason to give different rates of interest on what would
otherwise be totally equivalent accounts.


For instant access accounts, ISAs pay pretty much the same if not more
interest than the equivalent non ISA account, eg First Direct are
offering an ISA at 2.5% for a year, instant access. Their best
offering for non-ISA instant access is 0.25% gross. They've always
offered better rates from ISAs - the difference is nothing to do with
tax but an expected behavioural difference, people don't tend to use
ISAs as instant access even if they can - they tend to invest and
leave. And the interest rate drops after a year (when sensible people
transfer out).

Indeed. It's a sprat to catch a mackerel. I don't think you can properly
compare rates that include a hefty, temporary bonus, which is why I thought
it more realistic to select the longer term accounts I did.