ISA rates fall despite an increase product choice | moneyfacts.co.uk
MONEYFACTS ARCHIVE. This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Derin Clark

Derin Clark

Online Reporter
Published: 16/03/2020

Savers will be disappointed to find that despite the number of ISA products available already exceeding the numbers seen at this point during last year’s ISA season, rates have fallen.

Data due to be published in the Moneyfacts UK Savings Trends Treasury Report has found that although there has been an increase in the choice of ISA deals available, the rates on offer have plummeted. For example, the average easy access ISA stands at 0.83% this month, a fall of 0.12% compared to last year when then average rate stood at 0.95%. The average longer-term ISA rate has also seen a significant year-on-year fall of 0.33%, falling from 1.62% to stand at 1.29% this month.

The data also shows that it’s not just ISAs that have seen rates drop, as fixed rate bonds have also seen rates fall. For example, the average longer-term fixed rate bond has fallen by 0.52% year-on-year and now stands at 1.37%. There could be further bad news for savers after the Bank of England unexpectedly cut base rate last Wednesday from 0.75% to 0.25%, which could see rates fall even further.

Savings market analysis 

Product numbers and rates March 2018 March 2019 March 2020
Number of live ISA products 383 415 417
Average one year fixed ISA 1.12% 1.37% 1.14%
Average longer term fixed ISA* 1.48% 1.62% 1.29%
Average one year fixed bond 1.19% 1.47% 1.15%
Average longer term fixed bond* 1.68% 1.89% 1.37%
Average easy access ISA 0.79% 0.95% 0.83%
Average easy access account 0.47% 0.63% 0.56%

*Longer term fixed bonds are those with terms over 550 days. Source: Moneyfacts Treasury Reports.

Commenting on the data, Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “The choice in the number of products available this ISA season has already surpassed those seen this time last year. Unfortunately, although savers have more products to choose from, average rates have fallen in the last 12 months.

“Our data shows that longer-term fixed deals have experienced the most substantial fall in rates, with longer-term ISA rates standing on average 0.33% lower today than they were last year, at 1.29%, and longer-term bonds taking an even heavier hit of 0.52% compared to last year’s average, now sitting at 1.37%. While both the longer-term rates have fallen, fixed rate bonds will generally pay a better return than those within an ISA wrapper. Over the years, the Personal Savings Allowance (PSA) has had a negative impact on the ISA market, which has resulted in many taxable accounts paying better returns than ISAs. Considering that basic rate taxpayers get £1,000 of interest tax-free (£500 for higher-rate taxpayers), it is now almost impossible to breach these levels with interest rates where they currently are.

“No-notice ISAs are always likely to be a popular choice among savers due to the flexibility and access they allow, and thankfully these accounts have seen a slightly less dramatic rate reduction, with the average rate sitting at 0.83% this year, down 0.12% compared to March 2019. Breaking with the convention that bonds usually pay a higher return than their equivalent ISA counterpart, no-notice accounts remain low, paying just 0.56% on average – which, while lower than last year’s average of 0.63%, is still a rally compared to 0.47% recorded in 2018.

“For those who are in the habit of opening an ISA each year, there are still some providers out there willing to top the rate tables. It is still the case that challenger banks tend to lead the way, and so it is important that savers pay attention to the more unfamiliar brands if they are looking for a new deal, and of course, be willing to move fast to catch a top rate before it’s closed.

“It is worrying to consider that this could well be the peak of the ISA season, as the recent unexpected base rate cut of 0.50% back to a historic low of 0.25% may be passed on to savers in the next couple of months. This is likely to be concerning to many who may feel disincentivised from saving, and worrying considering that saving regularly gives people a financial cushion in case of unexpected bills and stops them having to rely on expensive credit card and bank overdraft rates, which may shortly be increasing for some customers given the recent overdraft rules.”

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.

Cookies

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

I accept. Read our Cookie Policy