ISA Rates At Record Low As ISA season Approaches | moneyfacts.co.uk

Moneyfacts.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfacts.co.uk will always be from news@moneyfacts-news.co.uk. Be Scamsmart.


Derin Clark

Derin Clark

Online Reporter
Published: 15/02/2021

Savers hoping for a 2021 ISA season will be disappointed that ISA rates have failed to rise in the run-up to the start of the March ISA season and instead rates are at record lows.

Figures due to be published in the Moneyfacts UK Savings Trends Treasury Report found that over the past year, ISA rates, which were already disappointing, fell significantly. For example, those who locked into a one year fixed rate ISA a year ago will find that average one year ISA rates are now 0.70% lower than they were last February, down from 1.12% in February 2020 to just 0.42% this month.

As the below table shows, average easy access, notice, one year and longer-term ISA rates have fallen significantly year-on-year, having already fallen in the 12-month period between February 2019 and February 2020. This will be especially disappointing for savers who locked into a two year fixed rate ISA that is now maturing, as they will likely struggle to find an ISA rate as competitive as to what was available in 2019.

 

Average ISA rates
  February 2019 February 2020 February 2021
Average easy access ISA rate 0.96% 0.83% 0.24%
Average notice ISA rate 1.14% 1.13% 0.40%
Average one year fixed rate ISA 1.37% 1.12% 0.42%
Average longer term fixed rate ISA* 1.60% 1.34% 0.61%

*Longer-term fixed bonds or ISAs are those with terms over 550 days. Average interest rates based on a £5,000 deposit as at the start of the month.
Source: Moneyfacts Treasury Reports

 

“Savers’ expectations of an ISA season will continue to wane in 2021 as rates plunge and some providers pull their deals entirely,” explained Rachel Springall, finance expert at Moneyfacts.co.uk. “There does not appear to be any promising signs of competition, as rates reached new lows this month. Between December and February, average ISA rates failed to improve, the same pattern seen a year ago. Our analysis of variable and fixed average ISA rates shows no improvement between that very same period since December 2018 to February 2019, two years ago.”

What alternatives to ISAs are available?

Savers who are not concerned about losing the tax-free benefit of an ISA may be considering moving their savings to a non-ISA account instead, but savers should be aware that average rates on easy access savings accounts are in fact lower than easy access ISAs and fixed rate savings accounts are offering only marginally higher rates than fixed ISAs, so they may not see a significant benefit moving away from ISAs. Springall added: “Savings rates outside of ISA wrapper continued to deteriorate, reaching new lows this month.”

Long-term savers who do not want to lose the tax-free benefit of an ISA could consider a stocks and shares ISA. Those considering this should be aware that stocks and shares ISAs are a much risker saving option that not only could result in earning no interest but also losing all the money invested, including the initial capital. More information about this option can be found on our stocks and shares ISA page.

A popular tax-free savings option is National Savings & Investments (NS&I) premium bonds. Premium bonds allow savers to deposit up to £50,000 tax-free into the account, which instead of paying interest, puts savers into a monthly draw where they can win between £25 to £1 million tax-free. Although there is the possibility of winning a significant amount of money through premium bonds, there is no guarantee that savers even with the maximum deposit of £50,000 will win anything and, as such, this may not be a good option for savers looking for guaranteed interest.

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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Cookies

Moneyfacts.co.uk will, like most other websites, place cookies onto your device. This includes tracking cookies.

I accept. Read our Cookie Policy