Cash ISA rates rise for first time in seven years
It showed that average rates for instant access cash ISAs has jumped by 31% for balances of £1,000 to £2,500 and 29% for balances of £5,000 to £10,000. Admittedly, average savings rates are still significantly below 1%, but it shows that providers are increasingly reflecting the November rate rise in their products.
The analysis also showed that better rates are reserved for those savers who can leave their money long-term without the need to withdraw it. For example, the top interest rate for a £10,000 deposit in a cash ISA is currently 2.25%. There is also a 36 month cash ISA at 1.87% (with United Bank), or a 24 month cash ISA at 1.67% (with Charter Savings Bank).
The best instant access cash ISA is just 1.21% (from Virgin Money).
The research showed that the number of cash ISAs currently available on the market has also increased by 21%, from 370 products in 2017 to 446 currently.
Increases for current account rates have not matched those for cash ISAs. The average interest rates currently on offer for standard current accounts are significantly lower than those offered in 2017 – by up to 32%, depending on the amount being saved. There are now only a handful of current accounts that pay interest on savings balances.
For those savers with £2,500 or less, a standard current account still provides a competitive alternative to a cash ISA, said Defaqto. Those with £1,000 to £2,500 in a standard current account can receive an average interest rate of 1.96%, 280% more than that offered by the average cash ISA.
Brian Brown, head of insight at Defaqto, said: “Following several years of struggle, the savings market was given a welcome boost in 2017 with the Bank of England’s marginal base rate rise. We’re now beginning to see the results of this rate rise trickling down into this season’s ISA products and hope that this is a trend which will continue to play out given that savings rates still have some way to go to catch up with inflation, which currently stands at 3%.
“Our analysis looked at the various options available, looking at instant access accounts for those savers who need to make cash withdrawals versus long-term savings products where money can be locked away for a period of time. Despite the fact that cash ISAs have seen a boost in their rates for the first time in seven years, we discovered that some savers will be better off opting for a standard current account, particularly if they need frequent or instant access to their money.”