Interest rates of best buy cash ISA more than halved during the year of lockdown – now at just 0.48%
• Investing likely to offer better returns in the long term
• Savers have less than two weeks to use ISA allowance for 2020/21 tax year
Interest rates offered by the very ‘best buy’ cash ISAs in 2020, have more than halved during the year of lockdown to an average of just 0.48% per annum, compared to 1.36% in March last year, shows new research by Salisbury House Wealth, the leading financial adviser.
Poor interest rates of cash ISAs are largely attributed to low Bank of England interest rates and a lack of competition between banks. Recently, it was announced that these will remain at the current low rate of 0.1%. As a result, savers are losing out as their cash is growing at a slower rate than inflation, creating negative real returns.
The low Bank of England base rate has supressed interest rates offered by providers, meaning savers will struggle to find competitive interest rates even when shopping around.
The lowest cash ISA interest rates are offered by instant access accounts at an average of just 0.25%, down from 1.08% last year. While 5-year fixed rate cash ISAs offer the best interest rates at an average of 0.83%, down from 1.60% last year.
Salisbury House Wealth says during the past year of lockdown, many individuals have been able to build up a significant cash buffer as a result of reduced spending on holidays and dining out. This presents a great opportunity to invest for the future to generate better returns, rather than leaving money in low-returning products such as bank accounts or cash ISAs.
Savers who are looking for a long-term investment may want to consider alternatives, such as stocks and shares ISAs or REITs. Both of these options are included within an individual’s annual ISA allowance, but involve greater risk than conventional cash ISAs. Savers should be aware that the value of investments can fluctuate over time depending on how shares perform.
Individuals who want to invest in an ISA are encouraged to make use of this year’s ISA allowance of £20,000, which runs up to April 5 for the 2020/21 tax year. If this allowance is not used by this date, savers will miss out as it will not roll over to the next tax year.
In the March Budget, the Government announced that the current ISA allowance would remain frozen for the next tax year. Salisbury House Wealth says individuals should make the most of this tax freeze, in case it is subsequently reduced in the future.
Tim Holmes, Managing Director at Salisbury House Wealth, says: “With interest rates of cash ISAs continuing to fall to record lows, savers are unlikely to see any meaningful increase in their savings if they continue to stash them away into these ISAs.”
“That’s not to say they shouldn’t make use of the generous annual ISA allowance offered by the Government. Alternatives such as stocks and shares ISAs can make a big difference towards maximising savings in the long-term.”
“The most sensible approach for savers who are looking to take more risk is to stagger their investments into the stock market. It’s always useful to have a diverse portfolio with a range of asset classes in periods of volatility.”
Notes to Editors
Salisbury House Wealth is a leading financial advisor founded in 1986, and based in Leicester.
Salisbury House Wealth offers specialist professional advice to high net worth and mass affluent individuals on a range of financial products. These include mortgage and pension plans, investment programmes, inheritance tax plans and life insurance.
Average interest rates of last year’s very best cash ISAs compared to their equivalent products this year – down 65%