Barclays cuts cash Isa payouts for 1.6m customers despite more money pouring into tax-free accounts

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Savers continue to be scuppered by banks and building societies slashing rates on cash Isas - with more rate cuts on the way. Some 1.6million savers face lower cash Isa rates with Barclays from today.

So prolific have been the cuts that banks and building societies pay out less tax-free interest to savers now than they did two years ago - even though the amount of money in cash Isas has soared.

Banks and building societies have cut the average rate on fixed-rate and easy-access accounts by a huge 37 per cent, down from 2.76 per cent to 1.73 per cent over the past two years.

Interest cut: Barclays says the vast majority of the 1.6million savers who suffer a cut will lose an average of only £2.22 a month - that works out as a massive £42million less interest paid out a year by the bank

They now pay just over £4billion in interest a year against £5.8billion two years ago, even though the amount of money in these accounts has increased by over £30billion to £241billion.

Savers poured another £2.2billion-plus into tax-free cash Isa accounts in September.This brings the total since July to a £14billion, latest figures from Bank of England reveal.

In just three months, that is more than went in for the whole year to the end of June.The surge is due to savers looking to make the most of their tax-free savings limit.

In July the maximum you can put into these accounts each tax year jumped from £5,940 to £15,000. But even in the past four months the average rate is down 4 per cent following cuts from NatWest, RBS, HSBC, First Direct, Yorkshire BS and Santander. And some 1.6million savers with Barclays cash Isa accounts will see their interest rate cut today.

The bank is moving its two million-plus cash Isa savers from its 11 closed accounts into its Instant Cash Isa 1.

Barclays says the vast majority of the 1.6million savers who suffer a cut will lose an average of only £2.22 a month - that works out as a massive £42million less interest paid out a year by the bank. Despite the cut, the Barclays account still offers a competitive deal for new savers.

Banks and building societies have cut the average rate on fixed-rate and easy-access accounts by 37 per cent

Unlike most banks, it has not cut rates on Instant Cash Isa issue 1 in recent months and pays 1.28 per cent on balances up to £15,000, 1.38 per cent up to £30,000 and 1.48 per cent on higher balances, with interest paid monthly. If you are earning less than 1.25 per cent on your easy-access cash Isa, move it to a better deal.

There are lots of accounts paying this rate which will accept transfers including High Street names such as Nationwide, Virgin Money and Barclays.

There is no guarantee that these rates will not be cut but you have a good chance of carrying on earning a decent rate. 

That is because these providers are not tempting savers in with top rates which include a bonus for the first year.

Instead they use the account as a tap to pull in money from savers. 

When they reach their target they replace it with a new account with a lower rate for new savers.

But they tend to leave loyal savers on the rate they originally offered. It means the old rule of thumb that if you are in a closed account you earn a poor rate no longer always holds true.

If you are in an account which paid a bonus for the first year, you are likely to be earning a lousy rate after 12 months. It can be as little as 0.2 per cent - or just £20 interest on a £10,000 pot.

And it’s among the big banks where the rate will be low. HSBC Bonus Isa, now closed to new savers, was on sale until November last year with a bonus of 1.4 per cent for the first year.

But now the bonus has gone you earn just 0.2 per cent on savings up to £15,000 and 0.3 per cent on £15,000 or more. Lloyds, Halifax and BM Savings - where the deposit taker is Halifax - all cut the rate to just 0.5 per cent once the bonus runs out after a year.