Long-suffering savers are likely to be all too familiar with the current state of the savings market, and while ISAs were once a competitive safe haven for savers' cash, the last four years of rate cuts have been excruciatingly painful.
Indeed, our latest research can reveal that average rates, and in some cases best buy deals, have halved since the Funding for Lending Scheme (FLS) launched in 2012. And that's just the start – this year has added yet more fuel to the rate-cutting fire, and since the introduction of the Personal Savings Allowance in April, ISA rates have continued to plummet.
The table below shows how far rates have fallen, and as you can see, it isn't looking good:
"It's clear that the FLS has had a huge impact on the savings market over the last four years, but tax efficient initiatives launched by the Government may also have resulted in ISA interest falling to record lows," said Rachel Springall, finance expert at Moneyfacts.
Indeed, before the FLS launched, savers could get an easy access ISA paying 3.30%, but now the best deal on the market pays just 1.30%. The same decline can be seen in the longer-term fixed rate market – in 2012 the best five-year ISA paid 4.25%, whereas today it pays a miserly 2.05%.
"Not only that, but the downward rate spiral can also be clearly seen in terms of the overall average rate," added Rachel. The average now stands at just 1.17% compared with 2.55% in 2012, which further illustrates how far the market has fallen.
While the FLS no doubt started the downward spiral of ISA rates, the personal savings allowance (PSA) has only exacerbated things. As Rachel points out, since it was launched in April we've seen significant cuts across ISAs, with some providers offering better deals on their taxable accounts than their ISA counterparts.
"It's therefore fair to assume that this new allowance has reduced the appeal of ISAs, and has subsequently reduced their competitiveness yet further," added Rachel, with many savers wondering whether there's still any benefit in saving into these once-loved accounts.
But just what's next for the market? Last week's historic decision over EU membership could well leave people concerned about what to do with their savings, but there are options, as Rachel explains:
"As savers digest the Brexit result they will no doubt be concerned about the performance of their investments, and they may well decide to invest in cash instead. Fortunately, around 70% of all cash ISAs accept transfers in from stocks & shares ISAs, and with the ISA limit expected to rise to £20,000 next year, cash ISAs may become a popular haven.
"However, if providers are swamped with new money too quickly then the best buy deals could be withdrawn from the market. Therefore, anyone looking to invest in a cash ISA may be wise to consider doing so while there are still some decent deals left to choose from."
Want to get the best rates? Then don't hang around – compare the top cash ISAs
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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