Current Cash ISA rates, and five ways they could let you down.
According to Moneyfacts.co.uk, in October 2017 the average Cash ISA rate – including both variable and fixed rate ISAs – hit 1.00%.
The fact that was the highest they’d been for 14 months shows just how hard savers have been hit by low rates in recent years. Rates are so low for two main reasons.
Firstly, banks and building societies now have the Funding for Lending Scheme, giving them access to cheap funding to lend to customers – so they don’t need to attract savers’ cash to fund their lending. And secondly, the Personal Savings Allowance introduced in 2016 giving basic rate-paying savers tax-free interest of up to £1000 regardless of the investment has driven Cash ISA rates down.
In spite of low rates, Cash ISAs remain popular. So if you’re looking at rates, bear the following five points in mind to make sure you’re not disappointed…
1. How’s it compare with inflation? The best Cash ISA rate we could find in November 2017 was 2.15%; but in October 2017 the Consumer Prices Index put inflation at 2.8% – meaning your savings are losing value.
2. Is it a headline rate? What looks like a reasonable interest rate can easily turn out to be a ‘one-year wonder’ – in other words, it’s just there to attract your initial investment, and after 12 months it’ll drop down to a measly 0.1% or similar.
3. How much work will it be? If the rate does drop after 12 months, you’ll need to be on the ball and transfer your ISA to keep earning a reasonable return – and do you really need the hassle?
4. What’s the catch? The most attractive Cash ISA rates currently mean tying your money up for a lengthy period (the 2.15% we found was fixed for five years!). Plus there are usually penalties if you need to get to your savings before then.
5. Is there a better alternative? Quite simply, if you’re looking to maximise the return on your savings, there are many alternative options you may want to consider that still offer tax-free benefits.
In the Know can introduce you to regulated ISA experts who will review your ISA options, without any commitment or cost. So if you’d like to see how the alternatives to Cash ISAs compare, just follow this link.