01 Feb 2018

Savers are turning away from cash ISAs

Savers are turning away from cash ISAs

Consumer price inflation in December fell to 3% from the 3.1% in November. This latest figure is still much higher than any possible return from cash ISAs.

Financial services company Moneyfacts reports that last year's average return of 0.93% was the lowest they had ever seen.

After several months of consistent rises, the overall average cash ISA rate now sits at a much improved 1.09%. Moneyfacts says this could mean ISAs are worth paying some attention to again.

However, those who took out an ISA two years ago to take advantage of their tax-free nature will notice that rates were considerably higher back then.

Moneyfacts finance expert Rachel Springall said the figures highlight how, "ISAs have been left crippled by low interest rates and government schemes."

However, rates across the savings market increased for a 12th consecutive month, as the number of rises continue to outweigh the number of cuts - with 237 rises recorded in December compared with 59 cuts. Of these, 80 rises and 11 cuts were for cash ISAs.

Moneyfacts says that with non-ISA rates continuing to outpace their tax-free counterparts, savers may be more inclined to turn away from ISAs.

For instance, the best easy access ISA today pays 1.16%, while the best easy access savings account without a bonus sits at 1.3%.

Springall added: "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.

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."

Moneyfacts says that, as always, having both an ISA and non-ISA savings could be the safest way to go. Regardless of whether you choose an ISA or non-ISA cash savings account, you are still likely to see your savings eroded by inflation.

Moneyfacts says there is still not one single standard savings account that can beat or even match the rate of consumer price inflation.

Across 2017, inflation averaged 2.74% - three times as high as the average cash ISA rate of 0.93%.

In contrast, the average stocks and shares ISA returned growth of 11.75%.

Moneyfacts says that if you are looking for inflation-beating returns while keeping the tax-free benefits of an ISA, a stocks and shares ISA could be your best bet.

But Springall added that savers who decide to invest their cash into investment funds must keep in mind that the value can go down as well as up and be vigilant of fund-management charges.

She said: "While the growth potential may well persuade some to consider this option, remember that past performance is no guarantee of the future."

If you're not sure whether the risk is worth the potential reward, Moneyfacts says you could seek advice from a professional who can assess your risk portfolio before you dive in. Here at Aberdein Considine we have a qualified team of Independent Financial Advisors who can help you. To get in touch and arrange a meeting click here. 

Please correct the errors below before submitting your request:

Get in touch

Our dedicated client contact team prefer to receive enquiries through our contact form. We'll endeavour to get back to you within 24 hours or during the course of the next working day.

Tick this box if you wish to receive news and offers from Aberdein Considine. By doing, you indicate your consent to receiving targeted email marketing messages from us. On each occasion that we contact you in the future, you will be given the option to opt-out from receiving such messages. You may also email marketing@acandco.com at any time to opt-out.

The personal information that you provide to us in this form will only ever be used by Aberdein Considine (as the Data Controller) for the following specifically defined purposes:

  • email you content that you have requested from us
  • with your consent, occasionally email you with targeted information regarding our service offerings
  • continually honour any opt-out request you submit in the future
  • comply with any of our legal and/or regulatory obligations