Banks and building societies touting 'loyalty ISAs' are offering existing customers dismal rates compared to the market's best buys, MoneySavingExpert analysis shows - yet more proof that as we've always said, loyalty doesn't pay.

At the end of last month Nationwide launched a new Loyalty Cash ISA for 'members' - ie, customers who've had a current account, savings account or mortgage with it for at least a year - offering between 0.7% and 1% interest, depending on how long you've been with it. That's paltry compared to the 1.3% offered by the current best-buy instant access cash ISA, but Nationwide is far from the only culprit.

Our analysis shows just one of the 10 cash ISAs on the market billed as a 'loyalty' product or offering preferential rates for existing customers can beat the interest offered by the top ISAs open to all new customers - and even then only if you've had the ISA in question for at least six years.

For full help on getting the most out of your savings, see our Top Savings and Cash ISA guides.

Martin Lewis
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How do loyalty ISA rates compare?

There's no set definition of a 'loyalty ISA', but we've identified 10 ISAs which are marketed as rewarding customer loyalty. Most are only available to either existing customers or those who've been customers for a certain period. In almost every case, savers would be better off ignoring the 'loyalty' spin and instead just going for the market's best buy which is available to everyone.

Interestingly some providers offer more than one Loyalty ISA product, including Nationwide, which in addition to its new loyalty ISA, also offers a 'Flexclusive' Cash ISA which pays 1% to anyone with one of is currents accounts - though there are stipulations attached to those who only have its 'FlexAccount' current account (see the table below).

Here's how the ISAs compare:

How 'loyalty ISAs' compare

ISA Type Interest rate (AER) Who can get it? Top open-to-all cash ISA rate (AER)
HSBC Loyalty Instant access 0.55%-0.75% (1) HSBC current account-holders. 1.33% instant access (Post Office)
Santander eISA 0.6% Santander 123 World or Select customers.
New. Nationwide Loyalty 0.7%-1% (2) Nationwide current account-holders OR those who've had a Nationwide savings account or mortgage for 1+ years.
First Direct 0.75% First Direct current account-holders.
Nationwide Flexclusive 1% Nationwide current account-holders. ('FlexAccount' holders must have paid in £750+/mth for the last 3mths or switched to Nationwide within the last 4mths).
Scottish Building Society 1.05%-1.55% (3) Anyone - but higher rates available to those who've had the account for longer.
Bank of Cyprus UK 1yr fix 1yr fix 1.52% Bank of Cyprus UK customers of 6mths+. 1.52% 1yr fix (Charter Savings Bank)
Santander 2yr fix 2yr fix 0.8% Santander 123 World or Select customer. 1.7% 2yr fix (Shawbrook Bank)
Bank of Cyprus UK 2yr fix 1.56% Bank of Cyprus UK customers of 6mths+.
Bank of Cyprus UK 3yr fix 3yr fix 1.61% Bank of Cyprus UK customers of 6mths+. 1.85% 3yr fix (Shawbrook Bank)
(1) Rate depends on account type (2) Rate depends on how long you've been a member (3) Rate depends on the tax year you opened the ISA

As you can see above, the only exception to the 'loyalty doesn't pay' rule is Scottish Building Society. Its loyalty cash ISA, while open to all, pays higher rates for long-standing customers - the rate's upped at the beginning of each new tax year. If you opened the ISA in the 2011/12 tax year or earlier, you'd now be earning 1.35% AER or more - beating the current open-to-all best-buy.

'Loyalty does not pay'

Guy Anker, managing editor at MoneySavingExpert, said: "We've shouted for years that loyalty doesnít pay and this is another example. Yes, some of these banks and building societies offer some other decent regular savings accounts for existing customers, but offering such paltry rates in these cases for loyalty makes you wonder if they really understand the meaning of the word.

ďSavers need to see through the marketing spin, when you could really boost your savings by moving to another provider."

What are the best alternatives?

The top instant access cash ISAs rate right now are from Post Office, which pays 1.33% AER variable. Alternatively, if you're willing to fix for a year, you can earn up to 1.52% with Charter Savings Bank.

So if you're offered a special loyalty rate by your bank, ALWAYS compare it to the best buys in our Top Savings and Cash ISA guides.

Remember too that while these so-called loyalty rates are pretty dire, if you haven't checked your ISA or savings account recently, it's likely you could be languishing on a far worse rate. Some of the lowest paying accounts include a NatWest Cash ISA paying just 0.1% interest on balances up to £10,000, and a HSBC savings account paying a tiny 0.05%.

Don't just look at ISA rates

Remember, while ISAs are savings accounts you never pay tax on, many people don't need a cash ISA anyway due to the personal savings allowance (PSA), which allows basic-rate taxpayers to earn £1,000/yr tax-free interest (higher-rate £500/yr).

If you don't want an ISA, you can earn 1.33% with an easy-access savings account, or up to 5% with a regular savings account.

Being loyal isn't just a problem for savers, it applies in other areas too. See if you can save by switching your energy, broadband, or insurance provider.

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