Banks and building societies are gearing up for a cash Isa war to attract deposits from the over-fifties next month but savers who have already taken out their Isa for this year are likely to lose out.
The Isa allowance is rising from £7,200 to £10,200 from October 6, with the amount that can be saved into cash going up from £3,600 to £5,100. Abbey, HSBC and First Direct are among those poised to launch higher-paying Isas this month, in an attempt to attract billions of savers' cash.
However, the deals are designed to attract savers who have not yet taken out an Isa in anticipation of the rule change. Those who have already opened an account this tax year, and now want to top it up with the extra £1,500, could find they are stuck on lower rates.
Abbey, part of Santander, will tomorrow launch an Isa with a fixed rate of 3.5% for two years. This is 0.50 percentage points higher than the group's top fixed rate in April - 3% fixed for one year with Alliance & Leicester (also part of Santander).
HSBC is expected to launch a fixed rate of 3.25% from September 21 - higher than its top 3.1% in April. It is understood that the deal will be available only to Plus and Premier current account customers.
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Its First Direct subsidiary is also set to launch a new Isa on Wednesday, paying a fixed 3% until November 9, 2010.
Andrew Hagger at Moneynet.co.uk, the price comparison site, said: "It's a kick in the teeth for those who thought they were being prudent by locking into the best cash Isa rates earlier this year."
The top cash Isa rate on the market is 4.6% from Leeds building society but you have to fix for five years and experts advise against such a long-term move in case you miss out when Bank rate starts to rise.
For those who want a shorter-term fix, the new deal from Abbey is likely to top the tables. Nationwide and Halifax also offer two-year fixes at 3.5%.
Savers who took out Isas this summer, after top rates had fallen from their April peaks, are likely to feel the most aggrieved.
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First Direct attracted hordes of customers at the start of the new tax year with its eIsa, which then had a one-year fixed rate of 3.1%. That fell to 2% on August 1 for new customers. HSBC cut its fixed rate of 3.1% to 2.5% for new customers from July 1. It plans to increase the rate again - to 3% - for new customers who don't have a Plus and Premier current account and open an account from September 28, sources said.
Variable rates have also dropped. Barclays cut its 3.61% Golden Isa - the best on the market in April - to 2.58% on June 1 for new customers. Savers topping up Isas will receive the rate at which they took it out.
NatWest last week cut its eIsa rate from up to 3.51% for those who took it out before May 15 to as little as 3%. The rate for those who took it out from May 15 has been cut from up to 2.5% to as low as 2%. Top-ups will receive interest at the new lower rates, NatWest said.
Hagger said: "It's easier for people on variable rates to transfer to a better offer but they're being hit with huge rate cuts and have to jump through hoops to make sure their money's working hardest for them."