Funding for Lending ruins cash ISA interest rates

Business banking news review: week ending 24 Mth 2013

The interest rates carried by cash ISAs in the UK are being driven down by a government scheme designed to provide more affordable mortgages and business loans.

The Funding for Lending sheme, a programme put forward by the Treasury in August of 2012, was designed to provide ultra low cost wholesale funding to any bank or building society willing to offer discounted interest rates on business loans or mortgages in an effort to revitalise the flagging economy. However, the downside of this new scheme has been that lenders no longer need to entice customers with high interest rates on savings accounts in order to generate the working capital needed to provide the funds to borrowers – and as a result the rates of return on all savings products have been scaled back across the board.

Savings experts say that it’s a positively ‘dreadful time’ for anyone looking to make their savings pots grow, especially since this time of the year has traditionally been when financial service providers usually engage in some cutthroat competition for savers who are yet to deposit their full cash ISA allowance before the end of the tax year.  However, this year is not seeing anything of the sort, thanks to Funding for Lending, and interest rates have by and large fallen well below 3 per cent  save for First Direct’s ISA for deposits of £40,000 or more.

If you’re looking for a deal that doesn’t require 40 grand to qualify for what now passes for a ‘top’ rate, your best bet would be a 2.8 per cent deal from Coventry Building Society. However, you’d be hard-pressed to find anything that matches that deal any time soon, as banks and building societies are remaining uncharacteristically silent on the possibility of raising rates before the 5 April tax deadline.

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