RATE FAIL The end of the Cash Isa? Accounts don’t offer the best return to savers – here’s where to stash your cash

Savers today can earn over 2 per cent on a one-year bond, but there is not a single fixed Isa paying this much

13 September 2018 - 08:06

CASH Isas are failing to keep up with fixed-rate bonds when it comes to where savers can find the best returns.

It's led to experts questioning whether this is the death knell for Cash Isas.

Savings comparison site Moneyfacts found that the average one-year fixed-rate Isa pays 1.26 per cent in interest - 0.16 percentage points less than the average one-year fixed bond at 1.42 per cent.

Meanwhile the average five-year fixed Isa pays 1.96 per cent while the equivalent bond pays a higher 2.21 per cent.

Moneyfacts says that while Isas were once favoured by savers looking to protect their cash from tax, they have now fallen from grace.

Rachel Springall, a finance expert at Moneyfacts, said: "There has been a distinct lack of competition in the Isa market, both from little movement in interest rates, to very few new providers entering the arena.

How to find the best cash savings rate

Savers can get higher returns by switching away from Isas.

To find the best account for your needs, use a comparison website.

Here's a round-up of the accounts to look for and how much you could earn by taking one out:

  • Savings accounts: One way to get more for your money is to opt for a fixed-rate savings bond. Here you can earn up to 2.69 per cent by locking cash away for up to five years.
  • Current accounts: Bank accounts have been an unlikely hero for savers over the past few years. Here, you can earn up to 5 per cent on up to £2,500, although you will generally have to meet minimum pay-in and direct debit requirements.
  • Regular savings accounts: These are accounts that typically require you to have a current account with the provider to access them. But if you do, you could earn up to 3.5 per cent for a year.

Source: Moneyfacts

"Savers today can earn over 2 per cent on a one-year bond, but there is not a single fixed Isa paying this as an equivalent.

"This means Cash Isas are still falling short."

Ms Springall adds that the personal savings allowance is also taking its toll on the Isa market as savers no longer feel the need to shelter their cash in Isas.

This is because the personal savings allowance, which was introduced in 2016, gives savers the chance to earn up to £1,000 in interest tax-free each year outside Isas.

The findings from Moneyfacts comes after recent research from consumer group Which? found that more than two-thirds (68 per cent) of Cash Isa accounts have seen no rate increase following the Bank of England base rate increase in August.

Earlier this month, we reported how not one high street bank is paying customers the latest base rate of 0.75 per cent.

To find the best accounts for you, check out our top Cash Isas guide.

Also see our best savings accounts guide, which includes easy-access and fixed rate deals.


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