ISA alert: Window for high rates closing – savers ‘best not sit on the fence for too long’
ISA accounts provide many beneficial benefits for savers which include tax breaks and potential bonuses. However, just as with any savings account, ISAs also have attributable interest rates which are expected to boost the money held within the account.
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Low interest rates are a wide ranging problem for bank accounts but new data revealed this week may worry savers who are already struggling.
Data from the Moneyfacts “UK Savings Trends Treasury Report” showed that the average one-year fixed ISA rate has fallen to 0.91 percent, the lowest rates since June 2017.
Financial experts, such as Martin Lewis, usually advise savers to shop around for the best deal when their rates lower but this itself may prove difficult.
The same report highlighted that the total number of savings accounts (including ISAs) dropped to 1,548 from 1,768 in recent months.
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The current number of savings products in total is now at its lowest level since February 2017.
For ISAs specifically, there are only 336 products available in May.
For comparison, this figure was 340 for April and 417 for March.
Rachel Springall, a Finance Expert at Moneyfacts, commented on this worrying findings: “Savers searching for a short-term fixed bond or ISA to safeguard their cash for the next year may be disappointed to find that average returns have fallen below one percent for the first time in three years.
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“Indeed, the savings market is awash with rate cuts and withdrawals, so consumers will need to work fast to secure the best deal.”
“As we had seen last month, savings providers pulled the most deals on a month-on-month basis since our electronic records began in 2007 and while the number of products to disappear month-on-month between April and May is less, deals are still disappearing.
“The number of savings accounts overall has now fallen to its lowest point in three years.
“Choice is dwindling for savers, in fact 220 deals have now vanished since the start of March, which was before the lockdown and two base rate cuts.”
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Rachel went on to theorise on what the causes may be for the general lowering of options: “If savers are looking for some flexibility with their cash then they may turn to an easy access account, however as these pay a variable rate the return could drop at any point.
“In fact, the market is already seeing a domino effect of rate cuts, with some of the top deals worsening in recent weeks.
“Providers are perhaps cutting rates to deter deposits due to demand or find they are much higher up the rate tables than they can cope with.
“Indeed, according to the Bank of England £11 billion flowed into sight deposits (such as easy access accounts) during March.”
While this is undoubtedly bad news for savers, there may be a silver lining to look out for.
Despite all the negativity associated with coronavirus and the economy, Rachel highlights that it could create an ideal environment for savers moving forward.
She detailed that while larger banks may have limited options for their products in light of the base rate cuts, smaller “challenger” banks may have more freedom to offer better rates.
She warns though that consumers will need to act fast to take advantage of this narrow window: “They are not immune to making cuts, savers best not sit on the fence for too long to secure the best possible return.”
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