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Published: 07/03/2017

ISA season should technically be in full swing right about now, but it's been a very slow start, as our latest research reveals that the average cash ISA rate has continued to fall - despite recent signs of life in the fixed sector - and has hit a new low of 0.82%.

While there have been gradual increases to the ISA allowance over the years, the market remains deprived of intense competition, which means savers are finding it tough to secure a decent return. In fact, even if you maxed out the full £15,240 allowance, our calculations show that you'd earn just £124.97 in the first year (based on the average ISA rate of 0.82%), whereas 10 years ago, when the rate stood at 5.06%, you could have earned more on an investment of just £3,000.

The table below highlights this in more detail, and also shows how significantly rates have fallen in recent years. This demonstrates how vital it is for savers to chase the Best Buys so they can get the highest returns possible, which will be particularly important when the ISA allowance rises to an enormous £20,000 in April.

  March 2007 March 2012 March 2015 March 2016 March 2017
Average ISA rate (fixed + variable) 5.06% 2.56% 1.45% 1.32% 0.82%
ISA allowance £3,000 £5,340 £15,000 £15,240 £15,240*
One-year return on average rate £151.80 £136.70 £217.50 £201.17 £124.97
Source: Compiled 07/03/2017
Will rise to £20,000 on 6 April 2017

Rates have fallen particularly rapidly in the last few months, with some deals falling by as much as 0.65% since the start of the year, and it's particularly telling that they're being cut to such an extent right before the new allowance comes into force. There appears to be a complete lack of appetite for ISA cash - providers are failing to compete, and given that non-ISA rates are actually far higher, consumers may be equally as reluctant to turn to the ISA sector.

Rachel Springall, finance expert at Moneyfacts, explains why this might be happening: "It's obvious to see that cash ISAs are not paying anywhere close to those accounts with no tax-free wrapper, but this is mainly because not all challenger banks offer an ISA equivalent - and as our recent figures show, those are the institutions offering the most competitive accounts at the moment.

"Luckily, Paragon Bank, one of the few who have improved ISA rates in recent weeks, now pays a market-leading 1.05% on its variable rate ISA, and also grabs the top spot for the best five-year fixed ISA rate at 1.75%."

Use it or lose it

ISA rates may be lacklustre, but if you've yet to use your full ISA allowance, you may want to get in on the action before it's too late. As Rachel points out, "the ISA allowance is there to use it or lose it, so it's important to go over any old accounts to see whether they need to be transferred to something better".

Pay particular attention to accounts you haven't checked in a while - some ISAs pay little to nothing in interest, going as low as 0.01%. Indeed, 70% of ISAs pay less than 1%, and there are none whatsoever that can beat the current level of inflation (1.80%). In contrast, 85% of the ISA market paid 1% or more a year ago, with only 15% paying less.

So, "while savers wait with bated breath for some ISA rate rivalry, they shouldn't wait too long to grab a good deal; keeping on top of the ISA Best Buys is a must," said Rachel. You'll want to be quick off the mark, too, as providers could pull some of the most competitive rates if they're flooded with demand - so if you spot a good deal, don't hang around!

Alternative means

You may want to look beyond the traditional cash ISA if you're searching for the best rates, too. "A Help to Buy ISA is a must for any first-time buyer saving up for a deposit," said Rachel, "as they can get a 25% bonus from the Government or withdraw their cash without penalty should their plans change. They also offer much higher returns compared to standard cash ISAs."

Then there's the soon-to-be launched Lifetime ISA, though the jury's still out on whether or not this will be a well-received addition to the market. In the meantime, you'll want to make sure you're getting the best rates possible, which means you may have to look elsewhere - high interest current accounts, for example, could be a great place to start.

But all may not be lost for the humble ISA. "It's becoming increasingly tough for consumers to take ISAs seriously when there are far superior savings rates available on accounts without a tax-free wrapper," said Rachel. "After all, the Personal Savings Allowance has hit cash ISAs hard, but it's worth remembering that the PSA might not be around over the longer-term. Those savers looking for better returns may also want to consider stocks & shares ISAs, though they must be aware of the risks involved."

However you choose to make the most of your money, one thing's clear - if you want the best deals, don't wait too long to pounce. Check out our ISA and savings account Best Buys to see if there's a rate that meets your expectations.


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. 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.

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