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Fixed ISA rates rise, but variable rates plummet

Fixed ISA rates rise, but variable rates plummet

Category: ISAs

Updated: 19/04/2017
First Published: 19/04/2017

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This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Following yesterday's welcome news that fixed savings rates are rising, today we delve a little further into things to find that, unfortunately, the same can't be said for variable rates, particularly in the cash ISA sector.

That's according to our latest research, which reveals that a definite split has appeared in the ISA market in recent months: the onset of ISA season encouraged providers to raise fixed rates in the hopes of securing guaranteed deposits, yet at the same time they've cut rates on variable accounts. As a result, the fixed ISA sector has seen the strongest rate rises in years, while variable ISA rates have once again hit fresh lows.

A tale of two ISA markets

As touched on yesterday, the figures show that fixed ISA rates have risen considerably this month: the average one-year ISA rate has risen by 0.11% to reach 0.92%, the highest rate we've recorded since October last year, while the average long-term ISA rate saw an even greater increase of 0.12% to hit 1.15%, a seven-month high.

These increases are particularly significant given the context – movements are typically far smaller, especially where increases are concerned. Indeed, we haven't seen such strong rate rises in this sector of the market in over four years, which makes the latest boost even more welcome.

However, this level of positivity didn't extend to the variable sector of the ISA market, which instead saw further reductions: the average notice ISA rate fell by a considerable 0.06% to 0.70%, while the no notice equivalent edged down by 0.02% to 0.62%, both of which are record lows. But why are variable rates falling while fixed rates are continuing to rise?

Rising competition

Well, much of it can be explained by providers' desire to secure fixed rate savers, particularly given that ISAs are often thought of as one-year products. Let's say you took out a one-year ISA in April 2016 – you'll now be coming to the end of that term, and may be tempted to look elsewhere for a new deal for the 2017/18 tax year. Providers don't want that to happen, so are increasing their fixed rates to reduce the likelihood of losing savers' funds, leading to greater competition in the market.

They're trying to compete from every angle, too, with the number of cash ISAs available having risen to a 14-month high of 327 – an increase of 16 from last month – which means you've now got plenty to choose from if you're hunting for the best cash ISA rates. Indeed, 51% of fixed rate ISA providers either launched new products or increased rates this month, so the desire to attract savers is clear.

Make the most of it!

If you're still looking for a home for your 2017/18 tax-free allowance, now's the time to see what's out there, before ISA season fizzles out and providers look for other areas to compete in. There are still some great deals to be found – check out the top ISA deals by heading to our Best Buys, or use our whole of market search tool to find the account that perfectly meets your needs.

Or, if you've already got an ISA for the new tax year, make sure your savings elsewhere are working as hard as possible. Fixed rates are rising in the non-ISA market, too, and they could rise even more in the coming months – it's hoped that the recent arrival of the NS&I bond will encourage further competition, as will the arrival of new challenger banks. Several are in the pipeline for later this year, and when they need to raise funds, rates could be raised in the process! Keep an eye on the market by regularly checking the best savings rates, and see if you can make the most of rising competition.

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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