Savings Interest Rates Rise as Providers Prepare for Cash ISA Season

By: MoneyFacts

As we approach a brand-new tax year, savers may be perusing the latest cash ISA deals to hit the market. However, they might be surprised by a recent surge in rate rises. This month so far, 22 providers have increased or launched new deals into the ISA market. This is promising news, as over the last year the average cash ISA rate returned just 0.97%*.

Overall, interest rates across the savings market have risen for 14 consecutive months, with the number of rises continuing to outweigh cuts, as moneyfacts.co.uk recorded 126 rate rises and 46 rate cuts in February. Around a quarter of the rises were for ISAs, with 33 rate rises. This month, the ISA market has continued to improve, as we have seen 40 rises so far.

Statistics that were released today show that the Consumer Price Index has fell to 2.7%. 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 this figure. Clearly, the choice to invest in a cash ISA can have its downsides, because the average stocks and shares ISA returned growth of 4.26% over the past year, according to Lipper data*.

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

“It’s clear to see that providers have been gearing up for ISA season this year, as there has been a decent amount of rate rises and a much-welcomed improvement to the Best Buy tables. A word of warning to savers, though: don’t expect the top rates to be around for too long if you are looking to grab an ISA before the tax-year ends.

“Savers who are eyeing-up ISAs will be pleased to see that over 20 providers have made a move by increasing rates, including big brands such as Nationwide, who launched a table-topping 1.30% on their easy access ISA. But still, with inflation sitting at 2.7%, savers’ cash is being eroded in real terms. In comparison to last year, savers would have found it difficult to get 1% on an easy access ISA.

“It remains to be seen whether the easy access ISA market could do with a few more entrants, as there are only 78 providers – in comparison with the non-ISA easy access market, which contains 97. It’s also disheartening to see such a gap between fixed rate ISAs and fixed rate bonds, too. For example, savers will find that many of the Best Buy two-year fixed rate bonds pay 2% or more, but 2% can’t be found on two-year fixed ISAs.

“The ISA market has faced a lot of negativity over the years because of the rate gap. However, they have also been overlooked because of the Government’s introduction of the Personal Savings Allowance (PSA). Savers may be turning a blind eye to ISAs, as tax-free returns could be found using the PSA instead, but there is no telling when the Government may scrap the incentive.

“As we have seen over 100 rate rises to ISAs since the start of 2018, its worthwhile for savers to consider utilising their ISA allowance for the long-term benefits, and avoid any delay in applying for the top rates before the buzz of ISA season fizzles out.”

*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 that require you to have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts will not be available to your entire readership and 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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