No sign of ISA season boom for cash deals

This time of year should see a bumper crop of attractive rates – but the opposite is true.

Hopes of a promising ISA season for cash savers appear to be dashed, as providers are not launching deals with attractive rates.

ISA season is the period from the start of February to the start of the new tax year on 5 April. Traditionally, savings providers unveil good ISA rates in this time frame to attract savers who have not used their annual tax-free allowance.

But new data reveals fewer savings products on the market than last month, and rates reaching fresh lows.

The Moneyfacts UK Savings Trends Treasury Report found saving account rates have failed to rise between December and February (in the run-up to the ISA season) for the past two years.

In addition to the already downward trend for rates, savers are now being offered some of the worst-ever deals – making shopping around even more important, or considering a stocks and shares ISA instead.

Product choice fell month-on-month to a record low. There are now 1,387 savings deals (including ISAs) on the market, which is 398 fewer deals available than a year ago, according to the report.

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For easy-access accounts, the current average rate is 0.17%. A year ago it was 0.56%. The average easy-access ISA today will pay savers 0.24%, down from 0.83% in February 2020.

Savers are currently being offered on average 0.36% on a notice account, compared to 1.04% a year ago, and for notice ISA accounts it is 0.40%, down from 1.13% in February 2020.

The average one-year fixed-rate bond pays 0.46%, falling from 1.17% 12 months prior, and average longer-term bonds are currently giving savers 0.68%, down from last year’s rate of 1.43%.

One-year fixed-rate ISAs have also fallen, to 0.42% today from 1.12% in February 2020, while longer-term fixed-rate ISAs have gone to 0.61% from 1.34%.

The most notable change month-on-month across the market has been its contraction, as there are now fewer savings deals on offer than ever before. There are 398 fewer overall than a year ago, and 82 fewer cash ISA deals. 

Savers could still get a better rate by switching, especially if they have their money stored away in a convenient easy-access account with their high street bank.

“Challenger banks and building societies continue to offer some of the best returns, but savers would be wise to act with speed to take advantage of the top deals,” Rachel Springall, finance expert at Moneyfacts, says.

“Due to the relentless pace of cuts and withdrawals in the aftermath of the Bank of England base rate cut and influence of the coronavirus pandemic, a good deal doesn’t tend to have a very long shelf life,” she added.

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According to Bank of England figures, disillusioned savers withdrew £6.3 billion from National Savings & Investments accounts in November alone, following its announcement in September that it was cutting the rates on offer to virtually nothing in some cases.

With rates on cash accounts at record lows, savers seeking better returns may have to take some risk and invest even to beat the current levels of ultra-low inflation.

Rob Morgan, investment analyst at Charles Stanley Direct, said: “The most important thing is to take a long-term view. Volatility is an inevitable part of investing and it can be very scary when the markets fall. A common mistake is to sell when that happens due to fear, which can be the worst thing to do.  

“Investors must be prepared to hold their nerve and ride the ups and downs. Keeping invested is usually the best strategy, as historical evidence shows that if you invest for a 10-year period there’s around a 90% chance of beating the return on cash savings when investing in global stock markets.”