Major UK banks are blocking customers from accessing top savings rates by failing to implement an Isa reform introduced nine months ago.
High street lenders including Lloyds, Natwest, HSBC and Barclays have not updated their systems to allow savers to open multiple cash Isas simultaneously.
The change, which came into effect in April 2024, was designed to give customers more flexibility with their tax-free savings.
Experts say the banks are running a “not-fit-for-purpose” service that prevents their most loyal customers from securing better returns.
Before April 2024, savers were restricted from paying into multiple cash Isas of the same type within a tax year.
If customers wanted to access a better interest rate after opening a cash Isa, their only option was to transfer their entire existing account to a different provider.
The reform introduced by HM Revenue and Customs changed this, allowing providers to offer customers multiple cash Isas simultaneously.
The only restriction under the new rules is that savers must not exceed their annual £20,000 tax-free allowance across all their Isas.
The banks claim that offering flexible Isa access requires significant changes to their IT systems
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Santander and major building societies Coventry and Leeds have also failed to implement the reform, which was added to the Individual Savings Account Regulations 1998.
The banks claim that offering flexible Isa access requires significant changes to their IT systems.
This stands in contrast to their operations over the past two decades, during which regulations never permitted subscriptions to more than one cash Isa with the same provider.
The effect on savers is clear in the significant rate disparities between different banks.
Lloyds Bank, for example, offers a one-year fixed-rate Isa paying 3.95 per cent interest, rising to four per cent for current customers. However, the same bank’s instant cash Isa pays just 1.15 per cent.
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This significant gap in rates means customers are forced to choose between better returns or easy access, as they cannot hold both types of accounts simultaneously under the banks’ current systems.
Rachel Springall, from comparison site Moneyfacts, said: “Those savers who want to split their cash across multiple Isas with the same provider will be left disappointed if providers don’t adjust their systems.”
She warned that customers with major banks would miss out on “better returns with other providers who are working harder to entice Isa deposits.”
Consumer champion Jane Hawkes told The Telegraph: “People aren’t being given ample opportunity to make the most of their money. A lot of people are missing out on putting money into Isas because of this.
“It’s disappointing. It deters people from taking out the Isa in the first place. You’re having to choose between a better rate or easy access. It’s one click too many.
“If you’re going to bring in a new facility, you need to make sure the IT can support it. But restricting people to one Isa is not a fit-for-purpose service. The change was meant to make things easier.”
The banks’ reluctance stems from their legacy IT systems, where single-Isa restrictions were hard-coded since 1998.
Larger lenders say the 2024 rule change requires a complete system redesign rather than a simple adjustment. Some smaller providers have proven more adaptable. Paragon Bank introduced its “Isa wallet” five years ago.
This system allows customers to spread their tax-free savings across multiple products, with savers able to open up to four fixed-rate cash Isas.
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Paragon customers can deposit up to £5,000 in each of these accounts.
HSBC said being able to open multiple Isas with a single provider is now an “optional feature” that they “continually review.” The bank added: “While this is now an optional feature for Isas, we have not ruled out introducing it in the future.”
Lloyds said: “Customers can open a cash Isa with us to use any remaining annual allowance after investing with another provider. We’re still reviewing the other non-mandatory Isa rules as there are dependencies on industry-wide systems to deliver them effectively.”
NatWest declined to comment, while Santander said it is reviewing its offering but does not currently allow flexible Isas.
Barclays, Coventry and Leeds did not respond to requests for comment.