ISA accounts can be set up from April as the new tax year starts and limits are reset. However, according to recent analysis from moneyfacts.co.uk, the expectations of a promising ISA season may be dashed this year due to continued cuts to ISA rates.
“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.
“In fact, there are 398 fewer overall than a year ago and looking solely at ISAs, there are 82 fewer deals.
“The fall however should not deter savers from comparing deals as they 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.
“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.”
More recently, ISAs faced additional difficulties as the UK’s inflation rates rose, leading to the number of inflation-beating savings options to drop.
This could be worsened over the coming year or so, as Rachel continued: “The eroding power of inflation on cash savings is getting worse – not only has the number of savings of accounts that can beat inflation fallen, but some top deals have also been cut over the past month.
“Those savers who are hoping to earn a decent return on their cash will be disappointed by the current state of the market, but they should not be discouraged to switch if they are on a poor rate.
“Inflation is predicted to climb to 2.1 percent during Q1 2022, and right now not one standard savings account could beat this, nor the Government’s target of two percent.”
According to moneyfacts.co.uk, the best ISA rate at 1.3 percent can be found at Gatehouse Bank.
Beyond this, there are few options for those aiming for a rate above one percent.
Rachel concluded by advising savers on where they should look to seek out the best results: “Savers searching for the best rates will find that challenger banks continue to take the top spot in many areas across the market, as they did last month. The need to chase a top rate and review any existing account could not be greater considering interest rates now sit at an all-time low, so considering the more unfamiliar challenger banks is a wise choice.”
Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to [email protected]