Rate drops dampen ISA season hopes | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 20/01/2020

Savers hoping to see a competitive ISA season this spring may be disappointed to see that average cash ISA rates are at their lowest levels since 2018.

Research carried out by Moneyfacts.co.uk has found that this month the average no notice ISA rate has fallen to 0.85%, the lowest it has been since August 2018 when it stood at 0.82%. Meanwhile, the average rates on fixed and notice ISAs have also seen disappointing returns. The average notice ISA dropped to 1.12%, the lowest it has been since October 2018 when it stood at 1.11%, and the average one-year fixed cash ISA rate fell to 1.15%, its lowest level since March 2018 when it offered 1.12%. The only area to remain unchanged month-on-month was the average longer-term fixed ISA rate, which stood at 1.37% this month.

In addition to this, competition within the ISA charts has also decreased. The number of live cash ISAs has fallen to 397, which is down by 18 products month-on-month, this is the lowest count since May 2018 when ISA savers had 393 products to choose from.

Cash ISA market analysis 

Product numbers and rates Jan 2019 Mar 2019 Dec 2019 Jan 2020
Number of live ISA products 408 415 415 397
Average no notice variable ISA 0.94% 0.95% 0.87% 0.85%
Average notice variable ISA 1.14% 1.14% 1.14% 1.12%
Average one-year fixed ISA 1.35% 1.37% 1.17% 1.15%
Average longer-term fixed ISA* 1.60% 1.62% 1.37% 1.37%

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

Commenting on the fall in ISA rates, Rachel Springall, finance expert at Moneyfacts, said: “It will be disappointing news for savers to find out that ISA rates are deteriorating at a time when some may well be looking to take advantage of their ISA allowance in the run-up to a new tax year. Our analysis highlights the importance for both consumers and providers alike to keep a close eye on the changing market.

“During December 2019, there were ISAs withdrawn and several rate cuts made in both the variable and fixed ISA markets. It appears that these changes are in response to a market adjustment, with savings providers finding themselves too close to the top of the rate tables and so may either see their product oversubscribed for or struggle to cope with demand.

“In the run-up to April, there tends to be high anticipation for a spike in competition in interest rates on offer with ISAs, but with the state of the market as it stands and murmurings of a potential base rate cut by the Bank of England gaining momentum, ISA rates could in fact be worse than they are right now.

"ISA savers may be looking towards the next Budget announcement for more positive news, as the Government could boost the £20,000 limit for tax-free savings. Savers also have the Personal Savings Allowance, which can be an additional way to negate tax on savings interest – however, there is no guarantee that this allowance will be around forever. Fixed cash ISA rates may not be as attractive as fixed rate bonds as it stands, but the longer-term benefits of an ISA should not be overlooked.

“Savers will be eagerly waiting to see if competition increases over the next few months, but it would be wise to compare rates now in case they fall further – particularly on easy access cash ISAs where they could always transfer elsewhere should a better deal arise.”

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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.

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