'Desperate' savers face ISA blow

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"Desperate" savers looking for better returns on their cash are facing more disappointment as this year's Isa season gets off to a slow start, a financial information website said.

The average rate paid on an Isa has plummeted to 1.74%, compared with 2.55% in February 2012, while the choice of Isas on the market has shrunk by a fifth year-on-year, Moneyfacts found.

There are 309 Isas now on the market and 11% of them do not allow people to transfer savings from older Isas into the new one, compared with a smaller proportion last year of 6%.

Separate figures from the Bank of England's database also show that the average rate for a cash Isa, including any guaranteed bonus, stood at 1.85% in December 2012, which is the lowest figure recorded in the two years since the monthly series began. This compares with an average rate of 2.6% recorded in July last year.

Efforts by the Government to unblock lending have been blamed by analysts for a recent deterioration in savings rates.

The Government's Funding for Lending scheme, which was launched last August, gives lenders access to cheap finance, but experts say that savings rates have plummeted because the scheme has made lenders less reliant on attracting savers' deposits.

Sylvia Waycot, editor at Moneyfacts.co.uk, said that the Funding for Lending scheme has resulted in a "loss of appetite for savers' money".

She said: "Normally we would expect to see providers trying to grab our attention with headline rates but this year, whilst rates on some accounts have gone up, they have not generally risen by as much as they were recently reduced by.

"Savers are desperate for some good news and the Isa season has always been a pretty reliable time for finding that account you're really pleased about. But it may be a lot harder to find this year."

Isa season is a flurry of activity which usually happens at the start of each year, during which savers decide which Isa (individual savings account) they are going to invest in as the new tax year approaches.

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