Cash ISAs still have some fight left in them

By: MoneyFacts

Savers are likely to have lost all enthusiasm in getting a decent return on their cash, thanks to a lack of competition in the market fuelled by consecutive rate cuts over the years. In times of despair, savers are being warned of investing their cash in poor easy access accounts and instead to consider a cash ISA.

It has been estimated that balances held in easy access ISAs are disappointingly less than a third of the cash that’s held in a taxable equivalent account, with £354bn sat in taxable easy access accounts opposed to just £108bn in easy access ISAs*.

Savers could be missing out on extra interest by neglecting easy access ISAs, according to the latest figures released by Moneyfacts.co.uk.

Rachel Springall, Finance Expert at www.moneyfacts.co.uk, said:         

“It’s true that savers have been left devastated by persistent rate cuts across the market, and the Bank of England’s base rate cut has given providers another excuse to slash rates. This month there have been 285 rate cuts and what’s worse, 20 best buy deals completely withdrawn from the market.

“Some savers may wonder if there will ever be any good news, and in uncertain times there are likely to be those reluctant to invest in any account that locks in their cash. These savers will be looking out for a decent easy access account, but they would be wise not to forget about ISAs. The average easy access ISA pays 0.87%, whereas its taxable counterpart pays just 0.50%.

“Granted, savers have the Personal Savings Allowance (PSA) and some may assume this makes an ISA redundant, but this is just not the case. There is no guarantee the PSA will last forever and those consumers prioritising their emergency cash savings by using an easy access account will in fact find some ISAs pay a better rate. Most of the providers doing so are mutuals, who clearly want to support their customers in uncertain times.

“Thankfully there is an abundance of easy access ISAs paying over a base rate beating 0.25%, with only five deals paying 0.25% or less compared to a disappointing 55 deals for their taxable counterparts. It has been estimated that 80% of easy access accounts have not been switched over a five year period*, which could well be down to the poor rates on offer. Therefore, it’s understandable why consumers might need to start looking towards ISAs for a better return with the same flexibility.

“Clearly, the notion that ISAs are dead in the water is just a myth, these tax efficient vehicles are designed to benefit savers over the longer term and provide flexibility. The only downside to ISAs are the longer term fixed rates where they pay slightly under their taxable counterparts – so choosing the right deal will completely come down to an individual’s tax allowances.“

*Source: FCA Cash Savings Market Study report

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