Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 30/09/2019

Research from Moneyfacts.co.uk has shown that this Autumn’s ISA season may prove challenging for savers looking for the best ISA interest rates.

For the first time since the introduction of the Personal Savings Allowance (PSA) in April 2016, rates have dropped over the six-month period from April to October.

As a result of the introduction of the PSA, which enabled basic rate taxpayers to earn up to £1,000 in interest tax-free outside of an ISA wrapper on standard savings accounts (£500 for higher rate taxpayers), interest rates plummeted between April and October 2016. However, ISA rates then improved for the same time period in 2017 and 2018.

Average interest rates of ISAs - 2016 to today

ISA market analysis

Average rates

Apr 2016

Oct 2016

Apr 2017

Oct 2017

Apr 2018

Oct 2018

Apr 2019

Today

No notice ISA

1.05%

0.78%

0.62%

0.64%

0.80%

0.92%

0.98%

0.93%

One-year fixed ISA

1.31%

0.95%

0.92%

1.04%

1.16%

1.30%

1.34%

1.24%

Two-year fixed ISA

1.39%

0.96%

0.90%

1.11%

1.29%

1.40%

1.45%

1.26%

Five-year fixed ISA

2.16%

1.29%

1.59%

1.72%

1.95%

1.95%

1.92%

1.74%

Rates based on £10,000 gross. Source: Moneyfacts.co.uk

Change in average ISA interest rates

ISA rate difference

Average rates

Apr - Oct 2016

Apr - Oct 2017

Apr - Oct 2018

Apr 2019 - Today

No notice ISA

-0.27

0.02

0.12

-0.05

One-year fixed ISA

-0.36

0.12

0.14

-0.10

Two-year fixed ISA

-0.43

0.21

0.11

-0.19

Five-year fixed ISA

-0.87

0.13

0.00

-0.18

Rates based on £10,000 gross. Source: Moneyfacts.co.uk

 

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“As it stands, the biggest impact has hit the longer-term offers, where the average two-year and five-year fixed ISA rates have fallen by 0.19% and 0.18% respectively since the start of April. Easy access ISAs are also on the downward trend, but have fallen by a more modest 0.05% over the same period, and this type of cash ISA may be more popular with consumers who want their cash quickly during a period of economic uncertainty.

Savers may choose to forfeit rate for the security of a tax-free account

Despite the reduction in ISA rates, savers may still want to invest in an ISA for their tax-free benefits. Rachel explains: “Savers can usually get better returns outside of an ISA wrapper, particularly if they fix, however consumers may wish to utilise their allowance as the PSA is not guaranteed to stay around forever. Indeed, the average five-year fixed ISA pays 1.74% today, but the average five-year fixed bond pays 1.90%. The top return on a five-year fixed ISA is 2.09% from UBL UK, but the best fixed rate bond over the same term pays 2.35% as an expected profit rate from Gatehouse Bank.

“It’s important that savers review their older ISAs too, especially if they hope to secure the top rates in the market. If savers are comparing easy access ISAs, it’s vital they are aware of the terms and conditions as some of the top deals apply withdrawal restrictions and are not so easy access as they may seem.”

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.

ISA on stack of coins

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