Leanne Macardle

Leanne Macardle

Editor
Published: 20/05/2019

The cash ISA market has enjoyed something of a resurgence recently, with data from the latest Moneyfacts UK Savings Trends Treasury Report showing that not only have product numbers risen since the Personal Savings Allowance (PSA) was introduced in 2016, but consumer demand for cash ISAs is on the rise, suggesting that savers are looking to future-proof their funds to benefit from tax-efficiency for the long term.

Market boost

The data shows that the number of available cash ISA products has risen from 301 to 437 since the introduction of the PSA on 6 April 2016, while demand data from the Moneyfacts Web Service shows the proportion of users searching for ISAs is on the rise: consumer demand for fixed cash ISAs increased to 22.74% in March, 5.28% higher than the previous month (17.46%), while the percentage of users searching for variable rate ISAs also increased on a monthly basis, rising by 3.57% to 16.07%.

Savings rates may not be rising that dramatically in return – indeed, very few ISAs pay a greater rate of interest than that paid on non-ISA products – but some average rates have now surpassed those seen in 2016, and for many savers, interest rates may not even be the sole motivator behind choosing such an account.

 

Cash ISA market analysis

 

BoE base rate

Total cash ISA products

 No notice cash ISA average rate

 Notice cash ISA average rate

 One-year cash ISA fixed average rate

May-19

0.75%

437

0.97%

1.17%

1.33%

Apr-16

0.50%

301

1.05%

1.16%

1.31%

 

Indeed, one reason for this increasing ISA activity could be that savers are looking to invest in cash ISAs in order to protect their savings pots for future tax years, when there’s the chance the PSA may no longer be in force and savings rates may have increased significantly. In this scenario, cash held within standard savings accounts will no longer be tax-free if the PSA is no longer applicable, and even if it is, rising savings rates mean that a smaller proportion of funds will remain tax-free. With a cash ISA, this needn’t be a concern.

Future-proof your funds

“It seems likely that in the current environment individuals may be considering investing in a cash ISA, with our demand data – which tracks the popularity of product searches through our Web Service – showing that consumer interest in cash ISAs has increased during the latest ISA season,” said Darren Cook, finance expert at Moneyfacts.co.uk.

“In fact, between February 2019 and March 2019, the percentage of users searching for fixed rate cash ISAs increased by 5.28% – from 17.46% to 22.74% – and the proportion of users looking for a variable rate ISA increased by 3.57% to 16.07% (up from 12.50% the previous month).  

“The recent increase in product availability, choice and the demand for cash ISAs may demonstrate that the present interest environment may not be the primary consideration for ISA savers, but motivation lies in the knowledge that this year’s ISA allowance will benefit from future tax relief, when interest may be much higher and the PSA may be no more. With the current economic outlook remaining unpredictable, savers continue to seek future security for their savings.”       

This suggests that, while the PSA will likely be more than adequate for most savers to earn interest tax-free – basic rate taxpayers can earn £1,000 in interest each year before being taxed, while higher rate taxpayers get a £500 allowance – this may not be the case forever, and savers are becoming increasingly aware of that fact. They still need to strike the right balance between finding an account that suits their individual needs and pays the highest interest possible, but for many, a cash ISA can provide that balance, giving them long-term security and a rate that suits. Find the best cash ISA rates right here to see if you can find an account that works for you.

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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