There will be tiers before bedtime rates tumble

Just when you thought cash Isa savings rates could not get any worse, they have. However, you have to look carefully to spot the changes. Rather than hacking away at flat rates in a rather obvious way, Isa providers are snipping away at the amount they pay by introducing tiered rates.

The Woolwich, which until two weeks ago paid a flat rate of 4.05 per cent, has used tiers to chop the interest on sums of ?1,000 or less to 3.6 per cent. At ?3,000 you'll earn 3.75 per cent, and at ?6,000, 3.95 per cent. You must deposit ?12,000 before you earn the old rate of 4.05 per cent or ?18,000 for 4.15 per cent.

Clydesdale Bank's rate chop was even more severe. Before it introduced tiers, it paid a flat 4 per cent to everyone with ?10 or more deposited. Now it has cut rates to 3 per cent for those with deposits up to ?999, 3.5 per cent for those with ?1,000 to ?2,999, and 3.95 per cent for those with ?3,000 to ?5,999.

Cash Isa savers with both these organisations should remember they can switch without penalty.

Safeway has done the opposite, removing tiering to produce a single flat rate of 4.5 per cent gross. But while those with less than ?9,000 invested have seen their rates improve from 3.6 per cent, 4 per cent and 4.35 per cent - those with more than ?9,000 have lost out. Their only solace can be that Safeway's rate still tops the table for variable rate Isas.

These three are not alone in reducing rates. Although the Bank of England base rate has remained unchanged since 2001, figures compiled by MoneyFacts show that the top rates on all forms of savings accounts have fallen during the past year. The biggest cuts have been suffered by those with cheque accounts (down by 0.72 per cent), and internet only accounts (cut by 0.65 per cent).

Melanie Stewart, head of research at MoneyFacts, says: 'People aren't investing in equity Isas at the moment, so it is particularly hard to see cuts on their cash Isas too. We've been seeing cuts since July. Banks just don't want the money - they've got to balance their books and the money is flooding in faster than they can lend it.'