The Worst Year on Record for Cash ISA Returns

By: MoneyFacts

Cash ISAs have been a popular go-to for consumers looking to take advantage of their tax-free allowance, but over the years these deals have dwindled in both number and the returns offered.

The average return on cash ISAs over the past year was just 0.93%, the lowest seen on moneyfacts.co.uk records. In contrast, the average stocks and shares ISA returned growth of 11.75%*. In January 2017, the average cash ISA rate fell to its lowest level at 0.82%, but after several months of consistent rate rises, it has today hit 1.09%. This is, however, still much lower than what could be achieved just two years ago. In April, the anticipated ISA season gave very little, as the average easy access ISA rate and average notice ISA rate both fell to their lowest level.

There is still some good news, as rates across the savings market have risen for a 12th consecutive month, with the number of rises continuing to outweigh cuts, as moneyfacts.co.uk recorded 59 individual rate cuts compared to a staggering 237 rate rises in December. This includes 80 rises and 11 cuts for ISAs alone.

However, statistics released today show that the Consumer Price Index has fell to 3.0%. Therefore, savers’ cash continues to be eaten away by inflation, as there is not one single standard savings account** that can beat or even match 3.0%.

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

“ISAs have been left crippled by low interest rates and Government schemes, which has resulted in the worst year we have ever seen for the interest paid on cash ISAs. Whilst these savings vehicles have been a sought-after home for savers’ cash over the years, their appeal is likely dwindling due to the returns on offer.

“To add insult to injury, inflation has been eroding any returns, with CPI averaging out at 2.74% over the last 12 months. The average return on cash ISAs over the past year was around a third of this, at 0.93%, marking the lowest rate we have ever seen and showing just how much ISA savers are being left out of pocket.

“The tax-free ISA allowance may remain at a respectable £20,000, but while the Personal Savings Allowance (PSA) remains in place, savers could get higher interest on savings accounts away from ISAs without paying tax. For instance, the best easy access ISA today pays 1.16% from AA, while their best easy access account pays 1.32%. However, savers looking away from ISAs will miss out on the long-term benefits that holding one provides, particularly as there is no telling how long the PSA will last.

“Savers who decide to invest their cash into investment funds instead must keep in mind that the value can go down as well as up and be vigilant of fund management charges. That said, the growth potential may well persuade some to consider this option, particularly as the average stocks and shares ISA has returned growth of 11.75% over the last year* – but remember that past performance is no guarantee of the future. As mentioned, the average return on cash ISAs over the past year was just 0.93%, which means the difference in return on a £10,000 investment is approximately £1,082.

“Risk-adverse customers who feel overwhelmed by the thousands of funds on offer can seek advice to assess their risk portfolio before they invest. Savers would be wise to give an investment time to grow, but if they prefer a cash ISA instead, they would be wise to keep on top of the Best Buys and switch if their interest diminishes.”

*Moneyfacts.co.uk average ISA rate includes all fixed and variable cash ISAs and goes back to 2007. Average stocks and shares ISA growth is calculated using Lipper data.

**Data Note: Please note that these savings product numbers only include deals that are available to all UK residents (this figure does not count each interest payment option for each account). Moneyfacts has chosen not to include products that have limited access, such as locals-only, high net-worth clients or linked products which mean you must have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts are not available to your entire readership, their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

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