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Savers putting money into a cash Isa with a high street bank will earn an average of £12 over the next year after interest rates were scaled back to historic lows.
The average instant-access cash Isa across the 10 largest high street banks pays 0.24pc in interest per year, according to Ratesetter, a peer-to-peer firm. This would return £12 a year, based on the average cash Isa balance of £5,114.
For savers willing to lock in their money for two years the rate is slightly better at 0.61pc, which would return £31 per year, although these come with penalties for early withdrawals.
The bad news for savers has been caused partly by emergency cuts to the Bank of England’s Bank Rate, decreasing the central interest rate to an all-time low of 0.1pc in response to the coronavirus outbreak.
The top 20 offers on the market now pay an average of 1.29pc, down from 1.59pc at this time last year, according to firm easyMoney, another peer-to-peer firm,
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Despite the low rates, cash Isas remain the most popular choice among everyday savers. In the 2017-18 tax year, 72pc of all Isas taken out were cash Isas.
Although this was lower than the previous year, when 77pc of all new Isas were cash, many savers are still locking in below-inflation returns, meaning they are losing money in real terms.
Rhydian Lewis of RateSetter said: “Cash Isas provide certainty on the returns they deliver – but with interest rates closing in on zero, this essentially guarantees your money will fall in value once inflation is factored in.”
Andrew de Candole, of easyMoney, warned the situation was likely to get worse before it improved. “Anyone hoping to build a pot of wealth using cash Isas alone is going to face a very long wait indeed," he said.
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